7. Microsoft (MSFT) just reported free cash flow to equity (FCFE) of $3.55 per share. Using a multi-period free-cash flow to equity model, what is the price of one share of MSFT stock if MSFT grows its FCFE by 10% for the first two years and then from year 3 grows its FCFE at 3% (terminal growth rate). Assume MSFT has a cost of equity of 10%.

a. Derive the P/E Rato of ~12.1 assuming ROE of 20%

b. Calculate the price of MSFT using the PE Ratio to calculate the Terminal Value (assume Net Income per share of $5.93 on year 3)