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J. B. Barrett Industries invests a large sum of money in research and development; as a result, it retains and reinvests all of its earnings.

J. B. Barrett Industries invests a large sum of money in research and development; as a result, it retains and reinvests all of its earnings. Further, they have no plans to pay dividends into the foreseeable future. A major pension fund is interested in purchasing Barretts stock. The pension fund manager has estimated Barretts free cash flows for the next 4 years as follows: $3million, $6 million, $10 million, and $15 million. After the fourth year, free cash flow is projected to grow at a constant 4%. Barretts WACC is 12%; they have no preferred stock, but have long term debt with a market value of $50 million, and have 10 million shares of common stock outstanding. What is the highest price at which the pension fund manager would pay per share of stock?

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