In the case study, when calculating incremental unlevered net income, should we include all the expenses mentioned in the case? If not, what expenses should we exclude and why?

Case Discussion Forum Instructions:

Before posting, please read the Discussion Forum Grading Policy document in the Case folder so

you know how many times to post and how the posts will be graded.

Also read the weekly outline (for week 8) on the TWO due dates for the case discussion (one for

the original post, the other for your responses). Your original post is worth 20 points, and your

responses to other students’ posts are worth 30 points.

We will have a live session on this case study at 8 pm CST, 3/9 (Tuesday). There is not a specific

attendance policy for the live session. But I expect that students who cannot attend the live

sessions will participate more on the discussion board (i.e., make more than the minimum 3

posts).

Choose one of the below topics, and post your initial response on that topic.

1. In the case study, when calculating incremental unlevered net income, should we include

all the expenses mentioned in the case? If not, what expenses should we exclude and

why?

2. Is there a big jump of unlevered net income from Year 5 to Year 6? Why?

3. How do you calculate the level of net working capital (NWC)? What is the value of

NWC at the end of Year 0, 1, and 6?

4. Which of the following free cash flow (FCF) streams is (are) a growing perpetuity?

FCF in Year 5, 6, 7 …

FCF in Year 6, 7, 8 …

FCF in Year 7, 8, 9 …

If you use the growing perpetuity formula: Year N TV = (Year N+1 CF)/(r−g), what is

the present value of that terminal value (is it Year N TV or some other numbers)?