Gamma Systems Manufacturing Corporation has reached its maturity stage, and its net sales are expected to grow at a 6 percent compound rate for the foreseeable future. Management believes that, as a mature venture, the appropriate equity discount rate for Gamma Systems is 18 percent.

A. Estimate the free cash flows available to the equity investors for 2020.

B. Estimate the value of Gamma Systems equity at the end of 2019 by applying the terminal value perpetuity equation that was presented in Chapter 10.

C. By applying the terminal value equation at the end of 2019, what are we assuming about the future?

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GAMMA SYSTEMS MANUFACTURING CORPORATION BALANCE SHEETS Cash Accounts receivable Inventories Total current assets Fixed assets, net Total assets Accounts payable Accruals Bank loan Total current liabilities 2018 $ 50,000 200,000 450,000 700,000 400,000 $1,100,000 $ 130,000 50,000 90,000 270,000 2019 $ 40,000 260,000 500,000 800,000 500,000 $1,300,000 $ 170,000 70,000 90,000 330,000