Question

question 7) novatech is considering an expansion project. you are asked to compute the firm’s free cash flows, continuation value, interest tax shields, and the total value of the firm. use the information provided below and complete the table. (just fill in the blank cells!)
year | 2025 | 2026 | 2027 | 2028
net income | | 12,000 | 13,000 | 14,000
pluss/less: after - tax interest expense (tc = 30%) | | | |
unlevered net income | | | |
plus/less: depreciation | | 3,000 | 3,200 | 3,400
plus/less: increase in nwc | | 1,200 | 1,300 | 1,500
plus/less: capital expenditures | | 8,000 | 3,000 | 3,000
free cash flow of firm | | | |
pv (free cash flow) at 10% | | | |
continuation value (at multiple 8) (ebitda 2028: 25,000) | | | |
pv (continuation value) at 10% | | | |
net interest expense | | 600 | 1000 | 1000
interest tax shield | | | |
pv (interest tax shield) at 10% | | | |
firm value | | | |

Explanation:

0 = 14,700

FCFF

FCFF = Unlevered Net Income+Depreciation - Increase in NWC - Capital Expenditures

2026: 12,420+3,000 - 1,200 - 8,000=12,420 + 3,000=15,420; 15,420 - 1,200 = 14,220; 14,220 - 8,000 = 6,220. Wait, now there's a discrepancy with the other formula. Wait, no, the two formulas should be equal. Let's

Answer:

0 = 14,700

FCFF

FCFF = Unlevered Net Income+Depreciation - Increase in NWC - Capital Expenditures

2026: 12,420+3,000 - 1,200 - 8,000=12,420 + 3,000=15,420; 15,420 - 1,200 = 14,220; 14,220 - 8,000 = 6,220. Wait, now there's a discrepancy with the other formula. Wait, no, the two formulas should be equal. Let's