Dionex Corporation, a leader in the development and manufacturing of ion chromography systems (used to identify contaminants in electronic devices), reported earnings per share of $3.20 in 1993, and paid no dividends. These earnings were expected to grow 12% a year for five years (1994 to 1998) and 2% a year after that. The firm reported depreciation of $2 million in 1993 and capital spending of $4.0 million, and had 8 million shares outstanding. The working capital was expected to remain at 40% of revenues, which were $108 million in 1993, and were expected to grow 6% a year from 1994 to 1998 and 2% a year after that. The firm was expected to finance 10% of its capital expenditures and working capital needs with debt. Dionex has a beta of 1.20 in 1993, and this beta was expected to drop to 1.05 after 1998. The Treasury bond rate was 3%, and the market risk premium was 8%.

1. Estimate the expected free cash flow to equity from 1994to 1998. (in 000s) assuming that capital expenditure and depreciation grow at the same rate as earnings. Stable firms in this industry have capital expenditure that are 150% of depreciation, and maintain working capital at 30% of revenues.

Calculate in Thousands

	Year 1993	Year 1994	Year 1995	Year 1996	Year 1997	Year 1998	Year 1999
	0	1	2	3	4	5	6
EPS Growth Rate
EPS (in $/share)
Net Income
Depreciation
Capital Expenditure
Rev. Growth Rate
Revenues
Working Capital Required
Change in Working Capital
Operating Cash Flow
Capital Expenditure by Equity
Change in WC financed by Equity
FCFE