Orange, Inc. just paid an annual dividend of $10 out of earnings of $12. Analysts expect Orange's dividend and earnings to grow at a rate of 15% for the next 2 years. After two years, earnings and dividends will grow at 5% forever. The appropriate discount rate for Orange's equity is 10%. Please show all work.

(a) (6 points) What is the fair market value for Orange?

(b) (5 points) What is the present value of growth opportunities (PVGO) for Orange if Orange is priced fairly? Should Orange continue its growth strategy?

(c) (2 points) What is Orange's current ROE?

(d) (2 points) If Orange's systematic risk were to increase, all else equal, what would happen to its P/E ratio? Why? You do not need to conduct any calculations.

(e) (5 points) Now, use the free cash flow method to determine if Orange's equity is over or undervalued. The firm's current share price is $14.50. Orange's past year free cash flow to the firm was $100. Analysts predict Orange's free cash flow to the firm will grow at 5% forever. The firm's weighted average cost of capital is 8% and cost of equity is 10%. The firm has $500 in debt outstanding and 200 shares outstanding. Is Orange overvalued or undervalued?