7-17 Using the free cash flow valuation model to price an IPO Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $12.50 per share. Although you are very much interested in owning the company, you are con- cerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've developed from a variety of data sources. The key values you have com piled are summarized in the following table. Free cash flow Year (r)FCF 2016 S 700,000 Growth rate of , beyond 2019 to infinity " 2% 2017 800,000 Weighted average cost of capital-8% 2018 019 1,100,000Market value of preferred stock- $1,000,000 Other data 0,000 Market value of all debe- $2,700,000 Number of shares of common stock outstanding 1,100,000 a. Use the free cash flow valuation model to estimate CoofTech's common stock b. Judging on the basis of your finding in part a and the stock's offering price c On further analysis, you find that the growth rate in FCF beyond 2019 will be value per share. should you buy the stock? 3% rather than 2%. What effect would this finding have on your responses in parts a and b