(13-2)

EMC value of operations = Current free cash flows(1+g)/(WACC-g)

=$400,000(1+0.05)/(0.12-0.05)
=$400,000*1.05/0.07
=6,000,000
There are different possibilites for sales growth to decrease the value of a profitable compay.
For example, one method of increasing sales growth is quality of the product. If a restaurant can
purchase higer-quality beef and bread to make sandwhiches. If the restaurant dosen't raise its
ment prices, it can attract more customers because it is offering a better deal. The restaurant
may still earn less moner because it is mow paying more money to purchase food, compare to
the amoutn it receive from each customer.

(13-10)

a. NOPAT = EBIT (1 – tax rate)

= $108.6(1-0.4)
= $65.16

NOWC = Current assets – Current liabilities

= ($5.6 + $56.2 + $112.4) – ($11.2 + $28.1)

= $134.9 million.

Capital = NOWC + Net plant and equipment

= $134.9 + $397.5
= $532.4 million.

FCF = NOPAT – Investment in Capital

= $65.16 – ($532.4 - $502.2)
= $65.16 - $30.2
= $34.96 million.

b. HV = FCF (1 + g)/ (WACC – g)

= [$34.96(1.06)]/ (0.11-0.06)

= $741.152 million.

c. V Ops = [FCF + HV] / (1 + WACC)

= [$34.96 + $741.152]/ (1+0.11)
= $699.20 million.

d. Total corporate value = V Ops + Marketable securities

= $699.20 + $49.9 = $749.10 million.

e. Value of equity = Total corporate value – (Notes payable + Long term bonds) – Preferred
stock
= $749.10 – ($69.9 + $140.8) - $35.0
= $503.4 million.
Price per share = Value of equity/Number of shares
= $503.4 / 10 = $50.34.