New Millennium Company earned $2.5 million in net income last year. It took depreciation deductions of $300,000

Question:

New Millennium Company earned $2.5 million in net income last year. It took depreciation deductions of $300,000 and made new investments in working capital and fixed assets of $100,000 and $350,000, respectively.

a. What was New Millennium's free cash flow last year?

b. Suppose that the company's free cash flow is expected to grow at 5% per year forever. If investor's require an 8% return on Millennium stock, what is the present value of Millennium's future free cash flows?

c. New Millennium has 3.5 million shares of common stock outstanding. What is the per-share value of the company's common stock?

d. What is the company's P/E ratio based on last year's earnings (i.e., trailing earnings)?

e. What is the company's P/E ratio based on next year's earnings (assume that earnings grow at the same rate as free cash flow).

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Free Cash Flow
Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the...