In 2011, No Growth Inc.'s EBIT was $220 million. The firm was expected to generate this level of operating income indefinitely. The firm had depreciation expense of $10 million that year. Capital spending totaled $20 million during 2011. At the end of 2010 and 2011, working capital totaled $70 million and $80 million, respectively. The firm's combined marginal tax rate was 40% and its oustanding debt had a market value of $1.2 billion. The 10-year government issued Treasury Bond rate is 5%, and the borrowing rate for companies exhibiting levels of creditworthiness similar to No Growth is 7%. The historical risk premium for stocks is 5.5%. No Growth's beta was estimated to be 1.0. The firm had 2.5 million shares outstanding at the end of 2011. No Growth's target debt-to-total capital ratio is 30%.

a. Estimate free cash flow to the firm (FCFF) in 2011 (5 marks)

b. Estimate the firm's weighted average cost of capital (WACC) (5 marks)

c. What is the minimum value you can offer to acquire No Growth Inc. assuming it will generate the estimated FCFF in 'a' indefinitely. (5 marks)

d. What is the minimum value you can offer to acquire No Growth Inc. assuming it will generate the estimated FCFF in 'a' only for the year 2011 and after that the FCFF is expected to grow at 5% rate indefinitely. (5 marks)

e. What is the minimum value you can offer to acquire No Growth Inc. assuming it will generate the estimated FCFF in 'a' only for the year 2011 and after that the FCFF is expected to grow at an abnormal rate of 15% till 2014 and then form 2015 the growth rate will reduce to a more normal 5% indefinitely. (10 marks)