A stock market analyst is evaluating the common stock of Filkins Manufacturing

Products Inc. (FMPI). She estimates that the company's operating income (EBIT) for the

next year will be $600 million. Furthermore, she predicts that FMPI will require $400

million in capital expenditures next year. The depreciation expense for next year is

expected to be $90 million and changes in net operating working capital are expected to

be $25 million. Free cash flow is expected to grow at a constant annual rate of 4% a year

and the company's WACC is 8%. The company has $150 million of debt (market value

equals book value), $125 million of preferred stock (market value equals book value),

and it has 50 million shares of common stock. The firm's tax rate is 25%.

a. What is the estimated value of free cash flow the first year? (That is, what is FCF1?)

b.Using the free cash flow valuation method, what is its expected stock price today?