Henley Corporation is a privately held company specializing in lawn care products and services. The most recent financial statements are shown below.

The ratios and selected information for the current and projected years are shown below.

a. Forecast the parts of the income statement and balance sheets necessary to calculate free cash flow.

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

c. Calculate operating profitability (OP = NOPAT /Sales), capital requirements (CR = Operating capital/Sales), and expected return on invested capital (EROIC = Expected NOPAT /Operating capital at beginning of year). Based on the spread between EROIC and WACC, do you think that the company will have a positive Market Value Added (MV A = Market value of company - Book value of company = Value of operations - Operating capital)?

d. Calculate the value of operations and MV A. (Hint: 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 growth beyond the horizon is 6%.)

e. Calculate the price per share of common equity as of December 31, 2015.

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Income Statenment for the Year Ended December 31 (Millions of Dollars Except for Per-Share Data) 2015 Net sales $800.0 Costs (except depreciation) 576.0 Depreciation 60.0 Total operating costs 636.0 164.0 Earnings before interest and taxes Less interest 32.0 Earnings before taxes 132.0 Taxes (40%) 52.8 Net income before preferred dividends 79.2 Preferred dividends 1.4 $ 77.8 Net income available for common dividends $ 31.1 Common dividends Addition to retained earnings $ 46.7 Number of shares (in millions) 10 Dividends per share $ 3.11 Balance Sheet for December 31 (Millions of Dollars) 2015 2015 Assets Liabilities and Equity $ 8.0 $ 16.0 Accounts payable Notes payable Cash Marketable securities 20.0 40.0 Accounts receivable 80.0 Accruals 40.0 Inventories 160.0 Total current liabilities 96.0 Total current assets 268.0 Long-term bonds 300.0 Net plant and equipment 600.0 Preferred stock 15.0 Common stock 257.0 Retained earnings 200.0 Common equity 457.0 Total assets $868.0 Total liabilities and equity $868.0