Hi Can you do problems 2.6 and 2.7 attached below? For 2.6 you have to use the coverage ratio to determine the previous years debt amount for the previous year and find fcf. I've attached a spreadsheet that starts you off.

Problem 2.1: A firm sells a used piece of equipment for $150,000. The equipment was originally acquired for $500,000 and is 80% depreciated for tax purposes at the time of the sale. The firm marginal tax rate is 30%. What is the after-tax cash flow produced by the sale? Answer: Given Information: Selling Price = Acquired Price = Depreciated for = Marginal Tax Rate = $150,000 $500,000 80% 30% Calculation: Sale Price Tax Basis Tax Profit Tax After-Tax Cash Flow Taxes Cash Flow $150,000 $150,000 $100,000 $50,000 $15,000 $15,000 $135,000 d for $500,000 and %. What is the Actual Forecast 2007 2008 2009 2010 -------------------------------------------------------------------(million $) 2,223.20 2,245.60 2,284.20 2,308.00 2.55% 2.57% 2.65% 2.71% 29 32.6 34.2 32.9 0.5 1.6 2.2 2.9 38.7 41.8 42.2 33.4 Sales EBITDA Margin Depreciation Increase in deffered Tax CAPEX + WC incr. Given Information: Table as per the give question. Dollar Sales = Debt = Increase in debt = Beta = Yield = Equity Risk = Micro-Cap Size Premium = EBITDA Multiplea = Corporate Tax = 3% 50% 7% 1.32 4.50% 4% 3.9% 6 38% Answer: Calculation: As per Discounted Cash Flow Approach: The Value of Fleet is calculated as follows: Debt Equity WACC (%) Weight Before-tax After-tax Weighted cost cost cost -------------------------------------------------------------------------50.00% 7.00% 4.34% 2.17% 50.00% 14.21% 14.21% 7.10% WACC 9.27% EBIT Minus taxes (38%) Plus depreciation Minus CAPEX (& WC inc.) Free cash flow 2008 57.71 21.93 35.78 32.60 68.38 41.80 26.58 2009 60.53 23.00 37.53 34.20 71.73 42.20 29.53 2010 62.55 23.77 38.78 32.90 71.68 33.40 38.28 2011 69.11 26.26 42.85 32.00 74.85 32.50 42.35 2012 70.91 26.95 43.97 31.50 75.47 32.50 42.97 PV {FCF @ 9.27%} = TV= PV of TV Enterprise Value = Residual EBITx = 2012 market capital = PV {'2012 market capital} = Enterprise Value using EBIT 135.67 million 477.16 306.31 441.98 6 425.48 million $273.08 million $408.75 million $408.75 Millions 2011 2012 ---------------$) 2,550.00 2,616.70 2.71% 2.71% 32 31.5 2.5 2.5 32.5 32.5 Actual Forecast 2007 2008 2009 2010 -------------------------------------------------------------------(million $) 2,223.20 2,245.60 2,284.20 2,308.00 2.55% 2.57% 2.65% 2.71% 29 32.6 34.2 32.9 0.5 1.6 2.2 2.9 38.7 41.8 42.2 33.4 Sales EBITDA Margin Depreciation Increase in deffered Tax CAPEX + WC incr. Given Information: Table as per the give question. Dollar Sales = Debt = Increase in debt = Beta = Yield = Equity Risk = Micro-Cap Size Premium = EBITDA Multiplea = Corporate Tax = Answer: Calculation: WACC 3% 50% 7% 1.32 4.50% 4% 3.9% 6 38% Beta = Equity Risk Premium Risk free Rate = 0.66 4.40% 4.50% 11.30% EBIT Minus taxes (38%) Plus depreciation Minus CAPEX (& WC inc.) Free cash flow PV {FCF @ 11.3%} = TV= PV of TV= Enterprise Value= Residual EBITx = 2012 market capital = PV {'2012 market capital} = Enterprise Value using EBIT = 2008 57.71 21.93 35.78 32.60 68.38 41.80 26.58 128.22 391.61 229.28 357.50 6 425.47542 $249.07 $377.29 2009 60.53 23.00 37.53 34.20 71.73 42.20 29.53 2010 62.55 23.77 38.78 32.90 71.68 33.40 38.28 2011 69.11 26.26 42.85 32.00 74.85 32.50 42.35 2012 70.91 26.95 43.97 31.50 75.47 32.50 42.97 $377.29 Millions Yes. There is a change in the value. This is due to the change in the capital structure that has changed the WACC that was used for discounting the cash flow. 2011 2012 ---------------$) 2,550.00 2,616.70 2.71% 2.71% 32 31.5 2.5 2.5 32.5 32.5 Actual Forecast 2007 2008 2009 2010 2011 -------------------------------------------------------------------(million $) 2,223.20 2,245.60 2,284.20 2,308.00 2,550.00 2.55% 2.57% 2.65% 2.71% 2.71% 29 32.6 34.2 32.9 32 0.5 1.6 2.2 2.9 2.5 38.7 41.8 42.2 33.4 32.5 Sales EBITDA Margin Depreciation Increase in deffered Tax CAPEX + WC incr. EBITDA Depreciation EBIT NOPAT Depreciation Deferred Tax Change in NWC CAPEX Change in Net Debt CF to Equity Holders Int Coverage Coverage Ratio Kd Ke Wd We Tax Rate 4.87 7% 14% 50% 50% 38.00% 2008 2009 2010 2011 57.71 29 28.71 17.80 29 60.53 32.6 27.93 27.93 32.6 62.55 34.2 28.35 28.35 34.2 69.11 32.9 36.21 36.21 32.9 2012 2,616.70 2.71% 31.5 2.5 32.5 2012 70.91 32 38.91 38.91 32