1. Erics Couture Incorporated had operating income before interest and taxes in 2017 of $220 million. The firm was expected to generate this level of operating income indefinitely. The firm had depreciation expense of $10 million that same year. Capital spending totaled $20 million during 2017. At the end of 2016 and 2017, working capital totaled $70 and $80 million, respectively. The firms tax rate was 40% and its debt outstanding had a market value of $1.2 billion. The 10-year Treasury bond rate is 5% and the borrowing rate for companies exhibiting levels of creditworthiness similar to Erics Couture is 7%. The historical risk premium for stocks over the risk free rate of return is 5.5%. Erics Coutures beta was estimated to be 1.0. The firm had 2,500,000 common shares outstanding at the end of 2017. Erics Coutures target debt-to-total capital ratio is 30%.

a. Estimate free cash flow to the firm in 2017.

2. Estimate the firms cost of capital.

3. Estimate the value of the firm (i.e., includes the value of equity and debt) at the end of 2017, assuming that it will generate the value of free cash flow estimated in (a) indefinitely.

4. Estimate the value of the equity of the firm at the end of 2017.

5. Estimate the value per share at the end of 2017.