Daryll Enterprises forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 14.0%, and the FCFs are expected to continue growing at a 5.5% rate after Year 4. The companys balance sheet shows $20 million of notes payable, $100 million of long-term debt, $60 million of preferred stock,$23 million of retained earnings, and $100 million of total common equity.

a. If the company has 15 million shares of stock outstanding, what is the best estimate of its price per share?

b. Based on the answer from (a), if the market price of the stock is observed to be $21 per share, should you long or short the stock?

Year 1 2 3 4

FCF $15 $25 $35 $45

a. Stock price= 233.356448/15=15.5571

b. We should short the stock.

Please solve and explain what formulas where used at each step! Thank you in advance!