Assume that it is the end of year 2015 and you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for$8.78per share. Although you are very much interested in owning the company, you are concerned 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. 2016 - 670,000

2017 - 800,000

2018 - 890,000

2019 - 1,000,000

Other Data

Growth rate of FCF, beyond 2019 to infinity = 4%

Weight average cost of capital =14%

Market value of all debt $1,710,000

Market value of preferred stock =$680,000

Number of shares of common stock to be issued = 1,100,000

a. Use the free cash flow valuation model to estimateCoolTech's common stock value per share.

b. Judging on the basis of your finding in part a and thestock's offeringprice, should you buy thestock?

c. On furtheranalysis, you find that the growth rate in FCF beyond 2019 will be

5% rather than 4%. What effect would this finding have on your responses in parts a and

b?