Problem 4 (10 marks)

Jasper Energy is a growing company with $10 million of debt at a before-tax cost of 6%, and it pays 30% corporate taxes. The firms debt-equity ratio is .5 and there are 3 million shares outstanding with a cost of capital of 12%. If the firm expects to have $2 million of free cash flow, and a growth rate of 4%, what is a fair value for the firms shares