The Economist forecasts the free cash flows (in millions) shown below. The WACC is 12.75%, and the FCFs are expected to continue growing at a 5% rate after Year 5. The companys balance sheet shows $10 million of notes payable, $50 million of long-term debt, $25 million of preferred stock, $18 million of retained earnings, and $80 million of total common equity, 5 million shares of stock outstanding.

a) What is the best estimate of its price per share?

b) Based on the answer from (a), if the market price of the stock is observed to be $130 per share, should you buy or sell the stock? Explain

Year 0 $0

1 $10

2 $15

3 $20

4 $25

5. $82