Saskatchewan River Enterprises(SRE) has $500 million in debt and 20 million shares of equity outstanding. Its excess cash reserves are $15 million. SRE is expected to generate $200 million in free cash flows next year with a growth rate of2% per year in perpetuity.SRE's cost of equity capital is 12%.

a. What isSRE's stockprice?

b. After analyzing thecompany, you believe that the growth rate should be3% instead of2%. Assume debt and cash values do not change. What should the stock pricebe, given the higher growthrate?

c. Given the growth rate change from2% to3%, how can you calculate the change in stock price without calculating the amounts in a or babove?