year ending: year 1 year 2 year 3 year 4 year 5 Sales 1,200 2,400 3,900 5,600 7,500 180 360 585 840 EBITD Depreciation EBIT Tax Expense EBIAT (200) (20) 8 (12) (225) 135 (54) 81 (250) 335 (134) 201 (275) 565 (226) 339 1,125 (300) 825 (330) 495 CAPX 300 300 300 300 300 0 0 0 0 0 Assume today is fiscal year end 0 EBITD is the Earnings Before Interest, Taxes and Depreciation. EBIAT is the Earnings Before Interest and After Taxes. Taxes calculated assuming no interest expense. Volante Corp (VC) is a local distributor of organic produce to local Boston area restaurants and stores. Management believes that revenues will grow at a high rate over the next 5 years. After that, free cash flow of the mature business will grow at the same 5% long term rate as the industry as a whole. Exhibit 1 contains projections for the expected revenues and cash flows achievable of the firm. VC's financial advisor is debating how to assess the firm's debt capacity and the impact of any financing decisions on value. In thinking about how much debt to utilize, two options are being considered. The first is to maintain a fixed dollar amount of debt, which would be kept in perpetuity. The second alternative is to adjust the amount of debt so as to maintain a constant ratio of debt to firm value. Exhibit 2 contains information on market conditions as well as assumptions regarding the firm's expected cost of debt. Please answer the following questions. Your answers should contain sufficient notation to explain your calculations. 1. What is the value of the company assuming the firm is entirely equity financed? What are the annual projected free cash flows? What discount rate is appropriate? year ending: year 1 year 2 year 3 year 4 year 5 Sales 1,200 2,400 3,900 5,600 7,500 180 360 585 840 EBITD Depreciation EBIT Tax Expense EBIAT (200) (20) 8 (12) (225) 135 (54) 81 (250) 335 (134) 201 (275) 565 (226) 339 1,125 (300) 825 (330) 495 CAPX 300 300 300 300 300 0 0 0 0 0 Assume today is fiscal year end 0 EBITD is the Earnings Before Interest, Taxes and Depreciation. EBIAT is the Earnings Before Interest and After Taxes. Taxes calculated assuming no interest expense. Volante Corp (VC) is a local distributor of organic produce to local Boston area restaurants and stores. Management believes that revenues will grow at a high rate over the next 5 years. After that, free cash flow of the mature business will grow at the same 5% long term rate as the industry as a whole. Exhibit 1 contains projections for the expected revenues and cash flows achievable of the firm. VC's financial advisor is debating how to assess the firm's debt capacity and the impact of any financing decisions on value. In thinking about how much debt to utilize, two options are being considered. The first is to maintain a fixed dollar amount of debt, which would be kept in perpetuity. The second alternative is to adjust the amount of debt so as to maintain a constant ratio of debt to firm value. Exhibit 2 contains information on market conditions as well as assumptions regarding the firm's expected cost of debt. Please answer the following questions. Your answers should contain sufficient notation to explain your calculations. 1. What is the value of the company assuming the firm is entirely equity financed? What are the annual projected free cash flows? What discount rate is appropriate