Gemco Jewelers earned $ 5 million in after-tax operating income in the most recent year. The firm also had capital expenditures of $ 4 million and depreciation of $ 2 million during the year, and the noncash working capital at the end of the year was $10 million.

a. Assuming that the firms operating income will grow 20% next year and that all other items (capital expenditures, depreciation and noncash working capital) will grow at the same rate, estimate the free cash flow to firm next year.

b. If the firm can grow at 20% for the next five years, estimate the present value of the free cash flows to firm over that period. You can assume cost of capital of 12%.

c. After year 5, the firms capital expenditures will decline to 125% of depreciation and the growth rate will drop to 5% (in both operating income and non cash working capital) In addition, the cost of capital will decline to 10%. Estimate the terminal value of the firm at the end of year 5.

d. If Gemco Jewelers has $10 million in cash and that the firm has $15 million in outstanding debt:

Estimate the value of equity in the firm

Value of equity per share, if it has 5 million shares outstanding.