I. Question $1($Free Cash Flow Approach, past exam question$)$

Green Planet, Inc., a manufacturer of air filter systems for industrial facilities, is considering

the addition of a new system to its current product line. The following data has been

forecasted:

The market value of the firm's debt is $$300,000,$ and it has $$150,000$ in marketable securities$.$

The company also has $10,000$ shares of preferred stock that pay an annual dividend of $$0\mathrm{.}75$

per share. Investors require a rate of return of $7\%$ on preferred stocks of similar risk. The firm

has $100,000$ shares of common stock outstanding, and its weighted average cost of capital is

$12\%.$ The expected tax rate is $35\%$ in the next two years and $40\%$ after that.

a$)$ Calculate the free cash flow for each of the next four years.

b$)$ After $2021$ the firm's free cash flow is expected to grow at $5\%$ per year indefinitely.

What is the value of the stock today?

c$)$ Assume that after $2021$ the firm's free cash flow is expected to grow at $9\%$ per year

for four years. After that time, the firm's free cash flow will grow at $5\%$ indefinitely.

Using the two$-$stage dividend growth model, what is the value of the stock?