Pat is preparing a valuation of International Products Corp. (IPC) using a multiple-stage FCFE valuation model with the following estimates. The FCFE per share for the current year is $2.75. The FCFE is expected to grow at 15 percent for the next four years, then at 9 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 1.25, and Pat believes that the current market conditions dictate a 2.05% risk free rate and a 10% expected market return. The following are five independent questions (in other words, use the data from the fact pattern above as the base case and only change the variable specified in a particular question below).

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

b) If the terminal growth rate is projected to be 7%, rather than 5%, re-estimate the value of a share of IPC. Does this new estimate make sense?

c) If the expected market return is assumed to be 9.5%, rather than 12%, re-estimate the value of a share of IPC. Does this new estimate make sense?

d) If the systematic risk coefficient (beta) of the stock increases from 1.25 to 1.30, re-estimate the value of a share of IPC. Does this new estimate make sense?

e) If IPCs 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 IPC. Assume IPCs bonds outstanding are traded at a yield of 6.45% and the risk premium required for IPCs equity shareholders over bond holders is 4.25%.