The Histogenics Corporation (HSGX), a regenerative medicine company, is about to sell all of its 6 million shares of stock at $11 each. You are an analyst, and you have been asked to assess whether or not this is a fair price. For your analysis, you will treat 2014 as time 0, 2015 as time 1, and so on. You estimate HSGX's cost of capital to be 12%. This past year, HSGX realized earnings of $5 million. You expect the company to grow these earnings at 16% a year for five years (i.e., until 2019) by reinvesting all of its annual earnings to expand its research and development. After 2019, you expect HSGX's return on equity to be equal to 12%. You also think that HSGX will start paying 60% of its earnings as dividends starting in 2019, and that it will continue to do so forever.

a) What is HSGX's return on equity (ROE) for the next 5 years?

b) What do you expect HSGX's total earnings and dividends to be at the end of 2019?

c) What do you expect HSGX's dividend growth rate to be after 2019?

d) According to your valuation, what should HSGX's stock price be today and would you recommend that investors buy the stock? (Hint: Keep in mind that the DCF formula gives you the value of the firm, and the firm has 6 million shares. You need to compute the price per share here).