Question 10.Upon graduation you will start work for a high growth company, Illogical Supplies. When you start work, the company is expected to have book equity of $120 per share, and is expected to have a return on equity (ROE) of 75% for the first 8 years. After the first 8 years after you join, the company's return on equity (ROE) is expected to be 14% per year. The company currently pays out 30% of its earnings in dividends each year (and will for the first 8 years) and is expected to pay out 80% of its earnings once its return on equity (ROE) falls to 14%. (a) What will the share price be when you begin work if the appropriate discount rate is 14%? (b) What will the share price be when you begin work if the appropriate discount rate is 11%?

Question 11. You are evaluating Ingrid's Igloos, a producer of housing in cold climates. Sales for Ingrid's Igloos are expected to be $90 million next year while cost of goods sold are expected to be 63% of sales. SG&A expenses are expected to be $11 million. Depreciation is expected to be $10 million next year while capital expenditures are expected to be $15 million. Ingrid's Igloos will spend $3.5 million to increase its level of inventory next year and suppliers will provide Ingrid's Igloos with $2.25 million in additional supplier credit. The tax rate is 20%. What are the Free Cash Flows for Ingrid's Igloos for next year? If Ingrid's Free Cash Flows are expected to grow by 3% per year forever and the discount rate is 11%, how much is Ingrid's Igloos worth today?