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Paul Corporation is a publicly traded company. You are looking to find the expected return of Paul Corporation using the Capital Asset Pricing Model. Table 3 contains the prices of the S&P 500 Index for the years 1993 through 1999. a) (10 Points) Calculate the yearly return for the market on each line in the table. What is the arithmetic average annual return for the S&P 500? Table 3: Some Market Prices S&P 500 Return 1993 1994 1995 1996 1997 1998 1999 S&P 500 Price $ 200 $ 205 $ 220 $ 250 $ 240 $ 230 $ 260 b) (5 Points) Assume the annual risk-free rate is 1% and Paul Corporation's Beta (B) is 1.3. Using the Capital Asset Pricing Model and your calculated inputs for the market rate, what is the appropriate discount rate for Paul Corporation? c) (10 Points) We are in the year 1999 (t = 0). Table 4 shows the next 3 years of simplified income statements and a few balance sheet accounts that have been predicted by an analyst. Calculate the future free cash flows for Paul Corporation for the years 2000, 2001, and 2002. Table 4: Paul Corp. Future Financial Information t+3 2002 t+1 2000 700 200 300 Revenue Costs Depreciation EBIT t+2 2001 680 190 200 800 300 140 200 290 360 Interest 40 50 30 EBT 160 240 330 Taxes 10 110 160 NetIncome 150 130 170 Change in Net Working Capital Capital Expenditures (based on Gross Fixed Assets) 2000 20 -20 2001 -10 20 2002 30 10 d) (20 Points) Using the discount rate you calculated in part b and the free cash flows from part c, use the discounted cash flow approach to value one share of stock for Paul Corporation in the year 1999. Free cash flows will grow 3% every year after 2002. Paul Corporation has 50$ in long-term debt and 100 shares outstanding. Paul Corporation is currently trading for 67$. What is the value of one share of Paul Corporation? Is the stock under-, over-, or fairly valued? Why