Consider the following financial data for Rinaldi Ravioli for the most recent year (see attachment):
Sales = $100M
Labor and material expense = $50M
Depreciation = $20M
Interest expense = $5M
Tax rate = 40%
Capital expenditures = $22M
Receivables increased by $6M
Inventory increased by $1M
Payables increased by $3M
Short-term debt = $60M
The cost of capital is 12%
The company is in decline, and the expected growth rate in free cash flow is negative 3% per year forever
The company has excess cash of $6M and a piece of land that it is not using with an estimated value of $16M
(a) Compute the free cash flow for the most recent year.
(b) Estimate the value of the enterprise.
(c) Estimate the value of the company's equity.
The solution computes the free cash flow for the most recent year, the value of the enterprise and the company's equity.