Durham Corporation currently has free cash flow (FCF) of $9 million. A well- respected stock analyst estimates that this FCF will increase by 9 % 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 5%.

Suppose Durham has a beta of 1.5, the risk-free rate is 2%, and the market risk premium is 12%. The company has no debt and $10 million in excess cash on its balance sheet. Durham has 10 million shares outstanding.

1. Show how the per share value changes if you assume mid-year cash flows? Provide the detailed calculations on the excel sheet. (2 marks)

2. Suppose Durham had $65 million in debt and its WACC was 14%. Calculate the new per share value of Durham. Refer to the steps in 2-4 for guidance. Provide detailed calculations on the excel sheet. (6 marks)