The financial statements of Lioi Steel Fabricators are shown below, with the actual results for 2004 and the projections for 2005. Free cash flow is expected to grow at a 6 percent rate after 2005. The weighted average cost of capital is 11 percent.

a. If operating capital as of 12/31/2004 is $502.2 million, what is the free cash flow for 12/31/2005?

b. What is the horizon value as of 12/31/2005?

c. What is the value of operations as of 12/31/2004?

d. What is the total value of the company as of 12/31/2004?

e. What is the price per share for 12/31/2004?

Income Statement for the Year Ending December 31

(Millions of Dollars Except for Per Share Data)

            a.   NOPAT₂₀₀₅ = $108.6(1-0.4) = $65.16

                  NOWC₂₀₀₅ = ($5.6 + $56.2 + $112.4) – ($11.2 + $28.1) = $134.9 million.

                  Capital₂₀₀₅ = $134.9 + $397.5 = $532.4 million.

                  FCF₂₀₀₅ = NOPAT – Investment in Capital = $65.16 – ($532.4 - $502.2)

                             = $65.16 - $30.2 = $34.96 million.

b.   HV₂₀₀₅ = [$34.96(1.06)]/(0.11-0.06) = $741.152 million.

c.   V_{Op at 12/31/2004} = [$34.96 + $741.152]/(1+0.11) = $699.20 million.

d.   Total corporate value = $699.20 + $49.9 = $749.10 million.

e.   Value of equity = $749.10 – ($69.9 + $140.8) - $35.0 = $503.4 million.

      Price per share = $503.4 / 10 = $50.34.