You are the head of the acquisitions department of a company. The potential investment in a steel manufacturing company, Steel Co., is currently under review. Attached are some information about the projections.

Q1: Calculate a five-year free cash flow for Steel Co., starting from Year 2.

Q2: Calculate the terminal value of the cash flow after Year 6.

Q3: Calculate the discounted cash flow value for Steel Co.

Q4: 4.1 Use the valuation done as per Questions 1 to 3 and recommend whether to extend an acquisition offer and explain your decision.

4.2 Discuss how you would approach a sensitivity analysis on the valuation of Steel Co. by answering the following questions:

4.2.1 Identify the key parameters and assumptions that affect your DCF valuation of Steel Co.

4.2.2 How will the following change the valuation (increase or decrease in the calculated value of Steel Co.)?

An appreciation in the exchange rate (effect on exports and imports).

A decrease in the demand for steel due to an economic downturn.\

Column1	Column2	Column3	Column4	Column5	Column6	Column7	Column8	Column9	Column10	Column11	Column12
						Year 2	Year 3	Year 4	Year 5	Year 6	After Year 6
Growth rate estimation						5%	3%	2%	4%	5%	3%
EBIT						$203,700	$157,400	$131,000	$133,000	$138,300	$140,000
Assets						$115,000	$102,000	$83,200	$38,000	$38,900	$40,200
Operating liabilities						$34,500	$34,500	$26,000	$9,100	$9,300	$9,600
Number of outstanding shares				27,250
Current share price				$20.91
Net debt				$240,000
WACC				8%
Inflation				3%
Effective tax rate				40%
Terminal growth rate				3%
Terminal date				Year 6
Extract from the reformatted income statement
				Year 0	Year 1
Tons of steel sold				26,000	33,100
Selling price per ton				$630	$620
Cost price per ton				$540	$545
Sales				$16,380,000	$20,522,000
Cost of goods sold				$14,040,000	$18,039,500
Gross profit				$2,340,000	$2,482,500
Sales, general, and admin costs				-$234,000	-$248,250
Operating expenses				-$1,962,000	-$2,040,250
EBIT				$144,000	$194,000
Extract from the reformatted balance sheet
				Year 0	Year 1
Accounts receivable				$1,723,400	$2,241,000
Inventory				$2,480,000	$3,462,000
Other current assets				$6,222,050	$5,100,860
Ending PPE (net)				$5,078,650	$5,093,140
Total assets				$15,504,100	$15,897,000
Accounts payable				$776,809	$1,042,146
Other current liabilities				$5,825,971	$5,284,134
Long-term operating liabilities				$3,941,020	$3,942,420
Capital				$4,960,300	$5,628,300
Liabilities and owner's equity				$15,504,100	$15,897,000