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. Below is some information about the projections. Show formulas for calculations.

Question

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

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