Question 1. Following is the five-year forecast for SKS Manufacturing. (Counts 4 Points in total)

                                                                $ millions
                                             2016     2017      2018      2019     2020
EBIT                                      5500      5600      5800      6010    6030
Capital Expenditures                500       500        500        500      500
Changes in Working Capital      40         100        (20)       (20)        10
Depreciation                           50         60          100        120      130

Part A. Assuming a tax rate of 38%, calculate SKS projected free cash flow each year.(counts 2 points)

2016 =
2017 =
2018 =
2019 =
2020 =

NPV of 2016 - 2020 Cash Flows (assume a 12% discount rate) =

Part B. Estimate the fair market value (NPV) of SKS today. Assume that after 2020, EBIT will remain constant at $6030 million (no growth), depreciation will equal capital expenditures each year, and working capital will not change. Assume cost of capital after 2020 will continue to be 12% (counts 2 points)

Question 2. Consider the following information. (Counts 3 Points)

U.S. 30 year t-bond yield = 2.%
Market Risk Premium = 6 %
Tax Rate = 38%
The Southern Company Beta = .05

Moody's Corporate Bond Rating for The Southern Company = Baa1 (assume 208 basis points)

Use Yahoo/Finance The Southern Company financial profile (see pages near end of the assignment) then answer the following questions.

Part A. Calculate the weighted cost of capital for The Southern Company

Part B. Calculate the MVA for The Southern Company

Question 3. Becky sought to raise $7 million in private placement of equity in her early stage Internet Company. She projected net income of $18 million in year 5 and knew that comparable companies traded at a price range of 11 times earnings (i.e. multiple of 11). She approached Mr. Lee of Alliance Capital about an investment. What share of the company would Mr. Lee require today if his required rate of return (RRR) were 60%.

Question 4. Becky is the sole owner of her company and has 1,500,000 shares of stock at a .10/share par value. Continuing with Question 3, how many shares of stock will Mr. Lee receive for his $7 million investment.

Question 5.Continuing with Question 3, Mr. Lee expects that a future round of financing (likely in year 3) will be required to completely fund Becky's Internet company to exit. If he believes that to support this future round, an additional 20% of the company will have to be sold, what is the value of the retention ratio that he will demand to insure that his ownership interests are not diluted.