Calculate the equity value of the firm. Write down your answer on the spaces provided in Exhibit 4. Assume a WACC of 10%. Shows your steps.

Instructions 1. Write down your name and student ID on the space provided above. 2. Exhibits 1&2 are income statement and balance sheet respectively for an industrial company. Exhibit 3 provides assumptions for financial forecast and valuation. 3. Calculate the equity value of the firm. Write down your answer on the spaces provided in Exhibit 4. Assume a WACC of 10%. 4. After finishing your work, take a photo for each page of the homework assignment and upload the photos to UMMoodle. Exhibit 1 Income Statement Statement of Income Year Ended 31 December 2008 Sales 3,323 Cost of goods sold 1,287 SG&A expenses 858 EBITDA 1,178 Depreciation 270 Operating income (EBIT) 908 Net interest expense 195 Income before tax 713 Taxes 228 Net income 485 Statutory tax rate 35% Exhibit 2 Balance Sheet Balance Sheet (in Millions, except for Per-Share Data) Year Ended 31 December 2008 2007 372 770 846 1,988 4,275 (1,176) 3,099 5,087 315 711 780 1,806 3,752 (906) 2,846 4,652 Assets Current assets Cash and equivalents Accounts receivable Inventory Total current assets Gross fixed assets Accumulated depreciation Net fixed assets Total assets Liabilities and shareholders' equity Current liabilities Accounts payable Accrued taxes and expenses Short-term debt Total current liabilities Long-term debt Common stock Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 476 149 465 1,090 1,575 525 1,897 2,422 5,087 443 114 450 1,007 1,515 525 1,605 2,130 4,652 For the company's note to financial statements, within accounts receivable, $105 million and $100 million are notes receivable in 2008 and 2007 respectively. As those notes carry market interests, they should be re-classified. Exhibit 3 Assumptions for Financial Forecast and Valuation 2009 2010 2011 Yearly revenue growth rate Operating expense (% of revenue) Tax rate on operating income Operating current assets (% of revenue) Operating current liabilities (% of revenue) Net fixed assets % of revenue) Book D/(D+E) 7% 73% 30% 45% 19% 93% 40% 5% 74% 30% 43% 19% 91% 40% 4% 74% 30% 42% 18% 90% 40% 2012 and after 4% 74% 30% 42% 18% 90% 40% Exhibit 4 FCF Forecast and Valuation 2008 2009F 2010F 2011F 2012F Forecast FCF Operating revenue (-) Operating expense Operating income (before tax) (-) Tax on operating income NOPLAT (-) Change in net working capital (-) Capital expenditure, net of depreciation expense Free cash flow Net working capital (+) Operating current assets () Operating current liabilities Net fixed assets Net operating assets ROIC (RNOA) Net financial obligations Book common ahareholders' equity Book D/(D+E) ratio 2009 2010 2011 2012 Free cash flow WACC PV of FCF (2009-2012) PV of terminal value Operating value - Net financial obligations Shareholders' value