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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 to increase at the followingsupernormal rates for the next three years, and 5% after the thirdyear 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 1,000,000outstanding shares and $6,000,000 in debt. We have estimated theWACC to be 15%.

a.   Calculate the EBIT, Depreciation, Changesin NWC, and Net Capital Spending for the next fouryears.                                                                          

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

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

d.   Calculate the present value of growingperpetuity at Year 3.                 (1 mark)

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

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

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