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Blue Scholar Learning, Incorporated $(BSL)$

$5-$year Financial Projection

$($$ millions$)$

Actual $201020112012201320142015$

Income Statement

Net sales $1,9962,2672,5082,8273,1383,571$

Cost $of$ sales $6447428309591,0871,241$

Gross income $1,3521,5251,6781,8682,0512,330$

Depreciation $4927851,0611,3011,009917$

Interest expense $171178191175142110$

Operating expenses $212239270306334374$

Net income before tax $47732315686566929$

Provision for taxes $1861266134221363$

Net income after tax $2911979552345566$

Balance sheet

Total current assets $1,1211,2341,4121,6501,9232,179$

Gross property and equipment $4,1805,1496,4107,4498,2009,016$

Accumulated depreciation $8681,6542,7144,0155,0245,941$

Net property and equipment $3,3123,4953,6963,4343,1763,075$

Goodwill $1,0691,0691,0691,0691,0691,069$

Total assets $5,5025,7986,1776,1536,1686,323$

Accounts payable $1047791110117135$

Short$-$term debt $335482842814585393$

Current portion long$-$term debt $41140165200223267$

Accrued expenses $8697120134174168$

Total current liabilities $5667961,2181,2581,099963$

Long$-$term debt $1,6941,5541,3891,189966699$

Deferred taxes $335334370454505496$

Shareholders' equity $2,9073,1043,2003,2523,5984,165$

Total liabilities and equity $5,5025,7986,1776,1536,1686,323$

Free cash flow $(7)(130)215464490$

$At$ the beginning $of2011,$ Macklemore Corporation $is$ considering the acquisition $of$ Blue $Sky$ Learning $(BSL),$ based $onBSLs$ actual financial data for $2010$ and its projections for $2011to2015,as$ shown above. Macklemore$s$ WACC $is8\mathrm{.}0\%,BSLs$ WACC $is11\mathrm{.}5\%,$ and the average $of$ the two companies$$ WACCs, weighted $by$ sales, $is8\mathrm{.}2\%.$ What $is$ the firm value $ofBSL(in$ $ millions$)at$ the beginning $of2011,$ assuming the company$s$ free cash flow grows $4\%$ per year $in$ perpetuity after $2015?$

Multiple Choice

$$4,297\mathrm{.}25$

$$4,571\mathrm{.}49$

$$4,686\mathrm{.}78$

$$6,181\mathrm{.}49$

$$5,351\mathrm{.}19$

$$7,423\mathrm{.}16$