Durham Corporation currently has free cash flow (FCF) of $10 million. A well- respected stock analyst estimates that this FCF will increase by 10 % for the next 5 years. The analyst estimates that at the end of 5 years the companys terminal value will be based on the year 5 FCF and the long term FCF growth rate of 4%.

Suppose Durham has a beta of 1.2, the risk-free rate is 3%, and the market risk premium is 14%. The company has no debt and $10 million in excess cash on its balance sheet. Durham has 8 million shares outstanding.

Using Excel:

Calculate the Free Cash Flow for years 1-5.