myretaildvd store is in serious financial trouble. they reported an operating loss of ($5 million) for the most recent year on revenue of $20 million. myretaildvd store has hired you to help improve the valuation of the company so that 90-year old owner can sell the company. you have found that you can close one of the worst performing stores (the lease is up for renewal now) and make a few other changes that will help the owner retire with some money from the business.

After closing the one store, you estimate next year revenue will drop to $15 million but the operating loss after tax will also drop to ($1 million). After that, you believe that company's revenues (with the deal with a major DVD supplier that you helped identify) will increase by 5% in year 2, 4% in year 3 and 3% in year 4 and forever 5%. You have analyzed the operating assets of the company and believe no further investments will be needed. The store that is closing has net $0 in net operating assets. The company uses Square to process credit cards, and expenses to upgrade that system in the future will be minimal. You estimate WACC to be 11%. The company has no net non operating assets or non operating liabilities.

a. what are the free cash flows to the firm in Year 1,2,3, and 4?

b. what is the terminal value of this company?

c. what is the estimate of the value of this company today and what do you tell the owner?