Web site, which contains Henley Corporation?s most recent financial statements. Use the following ratios and other selected information for the current and projected years to answer the questions that follow.

a. Forecast the parts of the income statement and balance sheet that are necessary for calculating free cash flow.

b. Calculate free cash flow for each projected year. Also calculate the growth rates in free cash flow each year to ensure that there is constant growth (that is, the same as the constant growth rate in sales) by the end of the forecast period.

c. Calculate the return on invested capital (ROIC 5 NOPAT/[Total net operating capital]) and the growth rate in free cash flow. What is the ROIC in the last year of the forecast? What is the long-term constant growth rate in free cash flow (gL is the growth rate in FCF in the last forecast period because all ratios are constant)? Do you think that Hensley?s value would increase if it could add growth without reducing its ROIC? (Hint: Growth will add value if the ROIC . WACC/[1 1 WACC]). Do you think that the company will have a value of operations greater than its total net operating capital? (Hint: Is ROIC . WACC/[1 1 gL]?)

d. Calculate the current value of operations. First calculate the horizon value at the end of the forecast period, which is equal to the value of operations at the end of the forecast period. Assume that the annual growth rate beyond the horizon is equal to the growth rate at the horizon. How does the current value of operations compare with the current amount of total net operating capital?

e. Calculate the intrinsic price per share of common equity as of December 31, 2019.

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Actual Projected 12/31/ 12/31/ 12/31/ 12/31/ 12/31/ 2019 2020 2021 2022 2023 Sales growth rate Costs/Sales 15% 10% 6% 6% 72% 72 72 72 72 Depreciation/(Net PPE) Cash/Sales 10 10 10 10 10 (Accounts receivable)/Sales (Inventories)/Sales (Net PPE)/Sales (Accounts payable)/Sales Accruals/Sales 10 10 10 10 10 20 20 20 20 20 75 75 75 75 75 5 Tax rate 40 40 40 40 40 Weighted average cost of capital (WACC) 10.5 10.5 10.5 10.5 10.5