Assume XYZ Company reported earnings per share of $2.02 in 2003 and paid no dividends. Earnings are expected to grow 14% a year for the next five years (2004-2008) and 7% a year thereafter. The Company reported depreciation of $2 million in 2003, had capital expenditures of $4.2 million, and had 7 million shares outstanding. The working capital was expected to remain at 50% of revenues, which were $106 million in 2003, and were expected to grow 6% a year from 2004 to 2008 and 4% a year thereafter. The company is expected to finance 10% of its capital expenditures and working capital needs with debt. Assume the Company had a beta of 1.2 in 2003, and this beta is expected to drop to 1.1 after 2008. Assume the Treasury bond rate was 7% and that the market risk premium was 5.5%. a. Estimate the expected free cash flow to equity (FCFE) from 2004 to 2008, assuming that capital expenditures and depreciation grow at the same rate as earnings. (Show all work)

b. Estimate the terminal price per share at the end of 2008. Stable firms in this industry have capital expenditures that are 150% of revenues and maintain working capital at 25% of revenues. (Show all work)

c. Estimate the per share value today based on the FCFE model. (Show all work)