Referring to Problem, assume it is now two years after the acquisition of Sparks, and you must perform a goodwill impairment test of the subsidiary. Growth expectations have been lowered to 3% going forward. Using the following five-year projection of cash flows and a 12% cost of equity, estimate the value of the subsidiary beyond year 5, the current value of the subsidiary, the current value of goodwill, and any goodwill impairment. Total assets (excluding intangibles) are now $612.5 million, and total liabilities are $175.0 million.

Cash Flow Projections for Next Five Years 2014 2015 2016 20172018 Kevenues $1,815.2 S1,869.7 S1,925.7 S1,983.5 S2,043.0 Less. Cost of goods sold @ 95% of revenue 724.4 1.776.2 1829.5 1.884.3 1.940.9 Gross profit SG&A expense @ 2% growth S 90.8 S935 S96.2 99.2 S 102.1 rate going forward Noncash expense (depreciation S 23.0 S 23.5 23.9 S 24.4 S 24.9 & amortization) Less: Operating expense Operating profit (EBIT) Less: Interest expense Less: Restructuring charges Eamings before taxes (EBT) Less: Taxes paid Net income 7.0 S 300 S 30.5 S 309 314 319 S 60.8 63.0 S 65.3 S67.8 S 70.2 11.5 0.0 S 44.3 S 51.5 S 53.8 S 56.3 S 58.7 18.2 7.0 7.0 7.0 7.0 11.5 11.5 11.5 11.5 5.0 0.0 0.0 0.0 13.7 S 30.6 35.5 16.7 17414 371 S 389 S 405 Free cash flow $54.1 S54.0 $55.6 S57.4 $59.0