Biomet Inc., which designs, manufactures, and markets reconstructive and trauma devices, reported earnings per share of \($0.56\) in 1993, on which it paid no dividends (it had revenues per share in 1993 of \($2.91).

It\) had capital expenditures of \($0.13\) per share in 1993, and depreciation in the same year of \($0.08\) per share. The working capital was 60% of revenues in 1993 and was expected to remain at that level from 1994 to 1998, while earnings and revenues were expected to grow 17% a year.

The earnings growth rate was expected to decline linearly over the following five years to a rate of 5% in 2003. During the high growth and transition periods, capital spending and depreciation were expected to grow at the same rate as earnings, but capital spending would be 120%

of depreciation when the firm reaches steady state. Working capital was expected to drop from 60% of revenues during the 1994–1998 period to 30% of revenues after 2003. The firm had no debt currently, but planned to finance 10% of its net capital investment and working capital requirements with debt.

The stock was expected to have a beta of 1.45 for the high growth period (1994 to 1998), and the beta was expected to decline to 1.10 by the time the firm goes into steady state (in 2003). The Treasury bond rate is 7%, and the market risk premium is 5.5%.

a. Estimate the value per share, using the FCFE model.

b. Estimate the value per share, assuming that working capital stays at 60% of revenues forever.

c. Estimate the value per share, assuming that the beta remains unchanged at 1.45 forever.