Acort Industries has I0 million shares outstanding and a current share price of $40 per share. It also has long-term debt outstanding. The debt is four years from maturity and has annual coupons with a coupon rate of 1Oo/o.The face value and the market value of the debt is $100 million. The firm has $25 million in cash and non-operating assets. Acort currently has EBIT of $106 million which is expected to grow at 20% for the next 3 years and then 5% thereafter. New capital expenditures are expected to equal depreciation which is $13million per year, while no changes in net working capital are expected in the future.

The corporate tax rate is 40% and Acort is expected to keep its debt-equity ratio constant in the future.

Acort stock has a beta of 1.50.The risk free rate is 4o/o, the return on the market portfolio"

is 12%

a.Compute the intrinsic value of Acort shares using the discounted cash flow method.

b.Should investors buy, hold or sell Acort shares?"