Referring to Problem 21-4, assume it is now two years after the acquisition of Sparks, and you must perform a goodwill impairment test of the subsidiary. Growth expectations have been lowered to 3...

Referring to Problem 21-4, assume it is now two years after the acquisition of Sparks, and you must perform a goodwill impairment test of the subsidiary. Growth expectations have been lowered to 3 percent going forward. Using the following fi ve-year projection of cash fl ows and a 12 percent cost of equity, estimate the value of the subsidiary beyond year 5, the current value of the subsidiary, the current value of goodwill, and any goodwill impairment. Total assets (excluding intangibles) are now $612.5 million, and total liabilities are $175.0 million. Cash Flow Projections for Next Five Years 2011 2012 2013 2014 2015 Revenues $1,815.2 $1,869.7 $1,925.7 $1,983.5 $2,043.0 Less: Cost of goods sold @ 95% of revenue 1,724.4 1,776.2 1,829.5 1,884.3 1,940.9 Gross profi t $ 90.8 $ 93.5 $ 96.2 $ 99.2 $ 102.1 SG&A expense @ 2% growth rate going forward $ 23 $ 23.5 $ 23.9 $ 24.4 $ 24.9 Noncash expense (depreciation & amortization) 7.0 7.0 7.0 7.0 7.0 Less: Operating expense $ 30.0 $ 30.5 $ 30.9 $ 31.4 $ 31.9 Operating profi t (EBIT) $ 60.8 $ 63.0 $ 65.3 $ 67.8 $ 70.2 Less: Interest expense 11.5 11.5 11.5 11.5 11.5 Less: Restructuring charges 5.0 0.0 0.0 0.0 0.0 Earnings before taxes (EBT) $ 44.3 $ 51.5 $ 53.8 $ 56.3 $ 58.7 Less: Taxes paid 13.7 16.0 16.7 17.4 18.2 Net income $ 30.6 $ 35.5 $ 37.1 $ 38.9 $ 40.5 Free cash fl ow $ 54.1 $ 54.0 $ 55.6 $ 57.4 $ 59.0