9. We find thefollowing information on NPNG (No-Pain-No-Gain) Inc. (18 markstotal)
- 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%.
- Calculate the EBIT, Depreciation, Changes in NWC, andNet Capital Spending for the next fouryears.
b. Calculate the CFA* for eachof the next four years, using the following formula:
d. Calculate the present value of growing perpetuity atYear 3. (1 mark)
e. Calculate the firm’s valueat time 0 using the WACC of the firm as the discount rate. (Notethat the first CFA* to be discounted is the cash flow from one yearinto thefuture.)
f. Calculate thefirm’s equity value at time0. (1 mark)
g. Calculate the firm’s shareprice at time0. (1 mark)
