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 to increase at the following supernormal rates for the next three years, and 5% after the third year for the foreseeable future:

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. We have estimated the WACC to be 15%.

a. Calculate the EBIT, Depreciation, Changes in NWC, and Net Capital Spending for the next four years.

b. Calculate the CFA* for each of the next four years, using the following formula:

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

d. Calculate the present value of growing perpetuity at Year 3.

e. Calculate the firm’s value at time 0 using the WACC of the firm as the discount rate. (Note that the first CFA* to be discounted is the cash flow from one year into the future.)

f. Calculate the firm’s equity value t time 0.

g. Calculate the firm’s share price at time 0.