Nashua 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 firms debt is $300,000, and it has $150,000 in marketable securities (non-operating assets). The company also has 10,000 shares of preferred stock that pay an annual dividend of $0.75 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.

1) Calculate the free cash flow for each of the next four years and the present value of these four cash flows.

2) After 2021 the firms free cash flow is expected to grow at 5% per year indefinitely. What is the value of the firm as of the end of FINA 3030 3 2021? You can use the constant growth dividend model to calculate it.

3) What is the value of the firm today? Calculate the sum of the value obtained in 1) and the present value of 2).

4) Calculate the value of equity per share. Suppose that the market price of the stock is currently $18. How do you assess this stock? Is this fairly priced or mispriced (overpriced or underpriced)?

2018 2019 2020 2021 Depreciation 50,000 55,000 70,000 75,000 EBIT 130,000 175,000 180,000 185,000 Changes in Operating Assets | 40,000 50,000 60,000 70,000