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1. We find the following information on NPNG(No-Pain-No-Gain) Inc. (18 marks total)

• EBIT = $2,000,000
• Depreciation = $250,000
• Change in net working capital = $100,000
• Net capital spending = $300,000

These numbers are projected toincrease at the following supernormal rates for the next threeyears, and 5% after the third year for the foreseeablefuture:

• EBIT: 10%
• Depreciation: 15%
• Change in net working capital: 20%
• Net capital spending: 15%

The firm’s tax rate is 35%,and it has 1,000,000 outstanding shares and $6,000,000 in debt. Wehave estimated the WACC to be 15%.

a.   Calculate theEBIT, Depreciation, Changes in NWC, and Net Capital Spending forthe next fouryears.                                                                          

b.   Calculate theCFA* for each of the next four years, using the followingformula:

CFA* = EBIT(1 – T) + Depr –?NWC –NCS                                                 

d.   Calculate thepresent value of growing perpetuity at Year 3.                 (1 mark)

e.   Calculate thefirm’s value at time 0 using the WACC of the firm as the discountrate. (Note that the first CFA* to be discounted is the cash flowfrom one year into thefuture.)                                                                                         

f.   Calculate thefirm’s equity value at time0.                                                   (1 mark)

g.   Calculate thefirm’s share price at time0.                                          (1 mark)