Answer in detail

Damion Sporting Goods $($DSG$)$ is a local wholesaler of sporting goods. Their customers are small

"Mom & Pop" stores. DSG has expected Sales of about $$1,000$ per year forever. Cost Of Goods Sold

$($COGS$)$ is typically about $$0\mathrm{.}80$ per dollar of Sales. Selling, General, and Administrative Expenses

$($SG&A$)$ is about $$\mathrm{.}20$ per dollar of Sales. The $$0\mathrm{.}20$ per dollar figure for SG&A includes Depreciation

Expense. DSG has a 'normal' Inventory balance of around $30$ day's worth of Sales or around $$82.$

DSG$\text{'}$s customers typically take about $60$ days to pay for shipments, for a normal A$/$R balance of about

$$164.$ DSG has Fixed Assets that could be sold for about $$50.$ The book value of DSG$\text{'}$s Fixed Assets is

$$80.$ DSG has Depreciation Expense of about $$10$ per year and Capital Expenditures $($CAPEX$)$ of $$10.$

Sales are not expected to grow and SSG expects no investments in either Inventory or Accounts

Receivable. The discount rate for companies with similar risk to DSG is $12\%.$ Reese, CEO of DSG$,$ owns

$100\%$ of the equity in DSG$.$ DSG has no debt.

Answer the following questions:

a$.$ What is DSG$\text{'}$s expected annual Earnings Before Interest and Taxes $($EBIT$)?$

b$.$ What is DSG$\text{'}$s expected annual Free Cash Flow $($FCF$)?$

c$.$ What is DSG$\text{'}$s working capital?

d$.$ What are DSG$\text{'}$s future expected FCFs worth to the capital market? e$.$ What is DSG$\text{'}$s Value Add?

f$.$ What is the value of Reese's equity in DSG$?$

g$.$ Suppose that DSG is suddenly forced by competition to hold more inventory. What will be the

immediate impact on DSG$\text{'}$s FCF$?$ What will be the impact on DSG$\text{'}$s Value Add? Explain briefly.

h$.$ Suppose that DSG$\text{'}$s COGS rises as a fraction of Sales. What is the immediate impact on DSG$\text{'}$s FCF$?$

What is the impact on Value Add? Explain briefly.