Problems

$9-4$ ENTERPRISE VALUATION$-$TRADITIONAL WACC MODEL Canton Corporation is a

privately owned firm that engages in the production and sale of industrial chemicals,

primarily in North America. The firm's primary product line consists of organic solvents

and intermediates for pharmaceutical, agricultural, and chemical products. Canton's

managers have recently been considering the possibility of taking the company public

and have asked the firm's investment banker to perform some preliminary analysis of

the value of the firm's equity.

To support its analysis, the investment banker has prepared pro forma financial

statements for each of the next four years under the $($simplifying$)$ assumption that firm

sales are flat $($i$.$e$.,$ have a zero rate of growth$),$ the corporate tax rate equals $30\%,$ and

capital expenditures are equal to the estimated depreciation expense.