EBIT = Income before tax + Interest = 323 + 178 = $501.
Tax rate = 126/323 = .390 or 39.0%
Capital expenditures = change in Gross Property and Equipment = 5139 - 4180 = 969
Change in working capital: working capital is Current Assets less operating Current
Liabilities—this excludes Short-term debt and Current portion of long-term debt. Hence, the
Working Capital balance is 1234 - (77 + 97) = 1060 in 2011, and 931 in 2010. The change in
working capital is 1060 - 931 = 129; this increase is a cash outflow.
Thus, 2011 Free Cash Flow = 501(1 - .39) + 785 - 969 - 129 = - $7.
[email protected] 11.5% {FCFs, 2011 - 2015} = $628.24
Terminal value in 2015 = $6,323.00. [email protected] 11.5% {Terminal value, 5 years} = 3,669.01.
Estimated firm value = $628.24 + 3,669.01 = $4,297.25

Difficulty: 3 Hard
9-29

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Chapter 09 - Business Valuation and Corporate Restructuring
14. Assume BSL is worth the book value of its assets at the end of 2015. Macklemore's
WACC is 8.0 percent. BSL's WACC is 11.5 percent, and the average of the two companies'
WACCs, weighted by sales, is 8.2 percent. What is the maximum acquisition price (in $
millions) Macklemore should pay to acquire BSL's equity?

Difficulty: 3 Hard
9-30

Chapter 09 - Business Valuation and Corporate Restructuring
15. Estimate BSL's value (in $ millions) at the end of 2010 assuming that in the years after
2015 the company's free cash flow grows 4 percent per year in perpetuity. Macklemore's
WACC is 8.0 percent. BSL's WACC is 11.5 percent, and the average of the two companies'
WACCs, weighted by sales, is 8.2 percent.
(NOTE to instructor: for this question, you might choose to include the FCF for 2011 of - $7