These questions are designed to develop students ability to make strategic decisions. Students will have opportunities to integrate knowledge about corporate-level strategy with analytical skills learned from finance courses.

1-3. Free Cash Flow; WACC; NPV (3 questions)

	2018	2019	2020	2021	2022	2023	2024
					M&A	1	2
Revenue	142343	152235	106364	144978	186152	205309	213635
EBIT + After Tax	4522	4225	2214	3214	3621	4314	5835
Capital Expenditure	1577	1823	1088	1657	2606	2395	3123
Dep. & Amortization	437	575	622	1026	1066	1045	1087
Net Working Capital Change	0	-4808	6090	1539	903	1689	1758
Free Cash Flow	3382	7785	-4342	1044	1178

Other information

Lets assume that today is Dec 31, 2022.

Your Investment in Acquisition = $2,000 in 2022

Capital Structure = $1,200 from Bank; $800 from Investors

Interest Rate = 5%

Cost of Equity = 10%

Corporate Tax Rate = 35%

Calculate free cash flow in 2023 and 2024. Show your work.

FCF in 2023

FCF in 2024

2. Calculate Weighted Average Cost of Capital? Show your work. Tax rate is 35%.

3. What is the firms Net Present Value to be acquired? Show your work. Are you going to reject or accept the deal? Why?

4-5. Present Value; Inflation (Questions 4-5 have nothing to do with previous questions)

Assume a new investment project is expected to generate free cash flows of $1,000 and $1,000 in 2023 (first year) and 2024 (Second year), respectively. The forecasted annual inflation is 6% a year.

4. Show (4) the real free cash flow (after inflation rate is considered) in 2023 (First Year) and 2024 (Second Year).

Real FCF in 2023

Real FCF in 2024

5. Assume that WACC is 10%. What is the present value of the project to invest in (Investment year is 2022)? Show your work.

Calculate PV at WACC of 10%

6-7. IRR (Questions 6-7 have nothing to do with previous questions)

6. An international music festival that is scheduled for the next year will bring tourists and artists to this town. You plan to purchase a Pizza Store for $100,000. This investment project is expected to generate $112,000 in real free cash flow for the first year. After the festival, there will be no customers to your pizza parlor and no investors to acquire it. What is the IRR on this investment? Show your work

7. If you borrowed $50,000 from Bank at 5% of interest rate and raised $50,000 from investors at 10% of the cost of equity, are you going to accept this project? Why? (Tax rate is 35%).