Important General Instructions for Reporting Numerical Answers: - Do not round intermediate calculations. - Unless otherwise requested, report your answers to four decimal places. - Unless otherwise instructed, solve problems in the given units. IE: if given units are in $K, complete your computations in these units and, as applicable, report your answer in these units (without writing "$" or "K"). - Do not report any numerical answer as a percent. IE: for example, write 0.3241 instead of 32.41%. - Report negative numbers with a leading minus sign, like this (for example): -23.4512 Not like this: (23.4512). - Note that Canvas removes trailing insignificant figures. If you type, for example, 41.3510, Canvas will remove the last decimal place and record your answer as 41.35 This is fine because 41.351 = 41.3510. - Assume time is measured in years unless otherwise stated. Introduction: Valuing an Entity with the Simple Dividend Discount Model GoodStuff Inc. (GS) is a profitable entity, operating in steady-state forever. Your PE firm is considering purchasing all its stock at the asking price of $78 (Ppe, or E). Your firm believes that GS is operating at an optimum capital structure, with total Debt (D) of $52, and Equity Market Value (E or Ppe) of $78, for a D/(D+E) ratio of 40%. If your firm buys GS, you will operate the firm in its current steady-state condition forever. Key Rates rD, pretax 7.25% Income Tax rate 35.00% Free Cash Flows to Owners, FCFE Numbers written like this ($85) are negative. Income Statement Revenue - Depreciation 9.16% As Purchased $90.00 ($25.00) - Other Expenses ($40.00) = EBIT $25.00 -Interest ($3.7700) =EBT - Tax = NI (= FCFE in this case) Valuation at T=0 PVE E NPVE = PVE - E $21.2300 9.16% $78.00 Question 1 What is the absolute value of the annual income tax of the firm? Question 2 What is the annual Free Cash Flow to Owners? Question 3 1 pts 1 pts 1 pts If your firm purchases GoodStuff today and owns it forever, what is the present value of all the future FCFs that you will enjoy by owning the firm? Report your answer to three decimal places. Question 4 1 pts What is the NPV of the project "buy this company and operate it forever." Report your answer to two decimal places.