The owner of a firm that produces and sells computer software would like to go public by issuing two million shares.

In the most recent years the company had on average:

• net income of $4 million.
• capital expenditures amounted to $2 million depreciation charge in that year was $1,000,000 interest expenses amounted to $1 million.
• working capital requirements are negligible

Book value of debt is $10 million; Market value of equity for similar firms is $30 million. The pre-tax cost of debt is estimated to be 10% and that of equity 16%.

All firms face a 40% tax rate.

Growth rate is estimated to be 7.5%.

Required

1. Estimate the free cash flow for the firm (FCFF).
2. Calculate the Weighted Average Cost of Capital.
3. Estimate the value of the firm.
4. Estimate the value of equity.
5. Estimate the price per share.
6. State what assumptions you would have made in the above calculations.