Pat is preparing a valuation of Intergalactic Services Corp. (ISC) using a multiple-stage FCFE valuation model with the following estimates. The FCFE per share for the current year is $1.25. The FCFE is expected to grow at 12 percent for the next four years, then at 8 percent annually for the following three years, and finally at a constant growth rate of 5 percent starting the eighth year. ISCs estimated beta is 1.15, and Pat believes that the current market conditions dictate a 2.50% risk free rate and a 12% expected market return. The following are five independent questions.

a) Given Pats assumptions and approach, estimate the value of a share of ISC.

b) If the terminal growth rate is projected to be 6%, rather than 5%, re-estimate the value of a share of ISC. Does this new estimate make sense?

c) If the expected market return is assumed to be 9%, rather than 12%, re-estimate the value of a share of ISC. Does this new estimate make sense?

d) If the systematic risk coefficient (beta) of the stock increases from 1.15 to 1.40, re-estimate the value of a share of ISC. Does this new estimate make sense?

e) If ISCs estimated beta is statistically insignificant, suggest an alternative approach to arrive at the required rate of return (k) on the stock and use this new k to re-estimate the value of a share of ISC. Assume ISCs bonds outstanding are traded at a yield of 6.45% and the risk premium required for ISCs equity shareholders over bondholders is 4.25%.