We have a company that will exist for only three years (It is an oil exploration company that will cease operations in three years).

Valuing this company will NOT include a horizon value because it ceases operations in three years.

Since depreciation is included somewhere in "Expenses" (we have no way to find its value without a full accounting of expenses), your Free Cash Flow valuation will use the equation FCF = NOPAT - D Operating Capital

Revenues Expenses Operating income Interest EBT Taxes Net income today Year Year2 Year3 1000 1150 1265 906.4 1035 1130 93.6 114.6 134.9 7.1 7.7 7.9 86.5 106.9 127 21.6 26.7 31.7 64.9 80.2 95.3 Operating current assets Net PPE Operating assets 360 400 345 189.4 230.8 362.2 549.4 630.8 707.2 1 Operating current liabilities 2 Debt 3 Equity 4 Liabilities and equity 180 200 230 118.4 128.2 131.3 251 302.6 345.9 549.4 630.8 707.2 shares of common price per share cost of debt: cost of equity: WACC 10 35-53 6% 12% WACC - Debt/(Debt + Equity) X(cost of debt) X(1-T)+ Equity/Debt + Equity) X(cost of equity) Debt from today" or year o balance sheet Equity number of shares X price per share Taxrate 25% Your assignment on this sheet: 1. Value the company using Free Cash Flow Model 2. Value the company using the Economic Profit Model Re-write the Balance sheets: B NOWC NFA Operating Assets 2 Debt Equity Operating Capital