Orange Phones, a leader in the development and manufacture of smart mobile phones, reported net income of $5 million in 2019. These earnings are expected to grow 10% a year for three years (2020 to 2022) and 3% a year after that. The firm reported depreciation of $1.5 million in 2019 and capital spending of $4 million and had 10 million shares outstanding. The working capital is expected to remain at 50% of revenues, which were $50 million in 2019, and are expected to grow 6% a year from 2020 to 2022 and 3% a year after that. The firm is expected to finance 10% of its capital expenditures and working capital needs with debt. Orange Phones had a beta of 1.40 in 2019, and this beta is expected to drop to 1.00 after 2022. (The treasury bond rate is 2%. The historical equity risk premium is 6%.)

(a) Estimate the expected free cash flow to equity from 2020 to 2022, assuming that capital expenditures and depreciation grow at the same rate as earnings.

(b) Estimate the terminal price per share (at the end of 2022). Stable firms in this industry have capital expenditures which are 100% of depreciation and maintain working capital at 50% of revenues.

(c) Estimate the value per share today, based upon the FCFE model.