The Datametrix Corporation has been in operation for one full year (2019). Financial statements are shown below. Sales are expected to grow at a 30 percent annual rate for each of the next three years (2020, 2021, and 2022) before settling down to a long-run growth rate of 7 percent annually. The cost of goods sold is expected to vary with sales. Operating expenses are expected to grow at 75 percent of the sales growth rate (i.e., be semifixed) for the next three years before again growing at the same rate as sales beginning in 2023. Interest expense is expected to grow with sales. Depreciation can be forecasted either as a percentage of sales or as a percentage of net fixed assets (since net fixed assets are expected to grow at the same rate as sales growth). Individual asset accounts are expected to grow at the same rate as sales. Accounts payable and accrued liabilities are also expected to grow with sales.

Because Datametrix is in its startup stage, management and venture investors believe that 35 percent is an appropriate weighted average cost of capital (WACC) discount rate until the firm reaches its long-run or perpetuity growth rate. At that time, it will have survived, recapitalized its capital structure, and become a more typical firm in the industry with an estimated WACC of 18 percent. Calculate Datametrix’s enterprise value as of the end of 2019. Also indicate what the equity would be worth.

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DATAMETRIX CORPORATION INCOME STATEMENT FOR 2019 (THOUSANDS OF DOLLARS) Sales Cost of goods sold Gross profit Operating expenses Depreciation EBIT Interest Earnings before taxes Taxes (40%) Net income $20,000 -10,000 10,000 -7,500 -400 2,100 -100 2,000 -800 $ 1,200