1. Battersea Bridge is a small construction company. In the most recent year, the firm reported $ 20 million in after-tax operating income on revenues of $ 200 million. The firm has 20 million shares trading at $10/share and a book value of equity of $ 50 million; it has $ 50 million in debt outstanding (book and market) and a cash balance of $ 20 million. The firms current cost of capital is12%.

Assume that the firm can maintain its existing return on capital for the next 5 years and expects after-tax operating income to grow 10% a year. What is the expected free cash flow to the firm in year five?

1. Less than or equal to $10m
2. Greater than $10m less than or equal to $15m
3. Greater than $15m less than or equal to $25m
4. Greater than $25m less than or equal to $35m
5. Greater than $35m