1. You have been hired as a consultant to develop a valuation model for devices, Inc. Management has provided you with partial income statement and balance sheet. Below is information for the most recent year (2020, year 0) and projected information for 2021. All numbers are in millions. After 2021, the firm is expected to grow at 3% in perpetuity. The weighted average cost of capital (WACC) is 12% and the corporate tax rate is 25%. There are 200 million shares outstanding.

What is your estimate of 2021 free cash flow?

(Actual) Forecasted

Income Statement 2020 2021

($ millions)

Revenues 10,000 11,000

Cost of Goods Sold 6,000 6,600

Depreciation expense 200 240

SG&A expense 1,200 1,320

EBIT 2,600 2,840

Interest expense 100 100

Earnings before taxes 2,500 2,740

Taxes 625 685

Net Income 1,875 2,055

Balance Sheet

Assets

Cash 2,300 2,484

Accounts Receivable 3,400 3,672

Inventory 1,250 1,350

Total Current Assets 6,950 7,506

Gross PPE 14,500 15,660

Accumulated Depreciation 3,000 3,240

Net PPE 11,500 12,420

Total Assets 18,450 19,926

Liabilities & EquityAccounts Payable 1,335 1,442 Long Term Debt 6,115 7,340 Common Stock 1,000 1,000 Retained Earnings 10,000 10,144 Total Shareholder's Equity 11,000 11,144 Total Liabilities & Shareholders' Equity 18,450 19,926