You have been asked to examine a valuation of Kings Landing Construction, the top construction company in Westeros. You have been given last fiscal years income statement. The analyst assumed a perpetuity growth rate of 5% for revenues, operating income, and D&A. She forecasted a $3 million increase of capital expenditures to $160 million. Moreover, she assumed non-cash working capital will be 26% of the change in revenues. The firm has a marginal tax rate of 20%

a. Estimate the expected free cash flows to the firm for the next fiscal year.

b. Calculate the expected level of after-tax reinvestment for the firm in the next fiscal year.

c. What is the return on capital being assumed in perpetuity by the analyst?

Income Statement ($ millions) Revenues Operating expenses Depreciation and amortization EBIT 1000 700 100 200 Income Statement ($ millions) Revenues Operating expenses Depreciation and amortization EBIT 1000 700 100 200