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Use the following to answer questions 17-22. Relive the Fight, is a company that takes Capital...

Use the following to answer questions 17-22.

Relive the Fight, is a company that takes Capital citizens on tours of former Hunger Games arenas. The current owner, Effie Trinket has decided she no longer wants anything to do with the Hunger Games and has decided to sell the company. Caesar Flickerman is very excited when he finds out about her decision and has hired you to determine whether Effie's asking price of $5 million is fair. With the Quarter Quell coming up, sales are not expected to slow to the long-run growth rate until 2024, after which time they are projected to grow at a constant rate of 1% (characteristic of the industry).

The appropriate discount rate (WACC) is 10%. If Caesar purchases the firm, he will close (become the new owner) on January 1, 2021 (assume the current year is 2019). Use the firm's financial data provided below to answer the following questions. Round answers to the nearest dollar. *note: increase in NWC= CA-CL

Financial Data 2021

Total Revenue .............................$1,171,429

Cost of Goods Sold........ ................$300,000

Other general expenses……………$200,000

Depreciation and amortization.......$50,000

Capital Expenditures................... $10,000

Income Tax Rate............................30%

Current Assets ............................. $300,000

Current Liabilities.......................... $180,000

Long-term debt...............................$500,000

17. You have forecasted the firm's total revenue and expenses as above for 2021. What are the firm's free cash flows for 2021?

a) $205,000

b) $305,000

c) $315,000

d) $355,000

18. Assume you're forecasted FCF as follows:
2022 $380,000
2023 $400,000
2024 $425,000
What is the firm's terminal value?

a) $429,050

b) $3,902,272

c) $4,292,500

d) $4,769,444

19. What is the PV of the firm's 2021 FCF?

a) $355,000

b) $322,727

c) $380,000

d) $277,273

20. What is the firm's enterprise value?

a) $4,448,749

b) $4,451,891

c) $4,485,178

d) $4,893,464

21. What is the market value of the firm's common equity?

a) $4,105,178

b) $4,485,178

c) $4,785,178

d) $4,705,178

22. Should Caesar Flickerman proceed with purchasing the business?

a) Yes

b) No

Solutions

Expert Solution

jeff jeffy answered 1 year ago

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