At the end of year 0, you are planning to acquire a firm. At year 0, the firms net income is $3,000, depreciation expense is $500, and FCF is $4,100. The firm has an effective tax rate of 40%. Cash flows are assumed to be spread out evenly over the course of the year (assume mid-year discounting). Based on your analysis of the firm and the industry, you come up with the following estimates for future growth:

• Growth rates will fluctuate in the next 3 years. However, after that, the firms growth will stabilize.
• The non-depreciation FCF (i.e., the FCF minus the depreciation tax shield) will grow at a real rate of 20% in year 1, 15% in year 2, and 10% in year 3. After this period, the non-depreciation FCF will grow at a constant real rate of 6% per year, forever. The non-depreciation FCF is real and risky.
• The depreciation expense will grow at a nominal rate of 8% per year for 3 years. After this period, depreciation will remain constant (at its year 3 level) forever. This FCF component is nominal and risk-free.
• The effective tax rate will remain at 40%.
• Ignore the FCF in year 0 in your NPV calculation given that it occurred before the end of the year.
• The real risk-free rate is 3% and the real risky rate is 12%. You expect the annual inflation to be a constant 5% in the future.

What is the discount (interest) rate you would use for the projected non-depreciation-related FCF?

What is the discount rate you would use for the depreciation tax shield?

What is the present value of the depreciation tax shield (include the terminal value)?

What is the present value of the firm's total FCF (including non-depreciation FCFs and the depreciation tax shield) from all future years?

The firms debt is valued at $10,000. Assuming that the firm currently has 1,000 shares outstanding, what is the price of a share?