Hot Pockets Corporation is considering going public. Managers want to estimate common stock value. The standard deviation of returns for this firm is 20%. The firms beta is 0.8. 3-month T-Bills currently trade at a discount to par of 2% on an annualized basis. The expected return on the stock market is 11%. There are 10,000 shares of common stock outstanding. Assume the firms capital structure is 40% debt, 60% common equity, the cost of debt is 6%, and the marginal tax rate for the firm is 21%.

a) What is the total risk of this firm, and what is its systematic risk?

b) What is the expected return of this stock? What is the name of the model you use to estimate it?

c) What is the Weighted Average Cost of Capital for the firm?

d) Using WACC as the appropriate discount rate, if the firms estimated free cash flows over the next 3 years are: