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You have forecasted free cash flows for the next three years for armor corporation. You also have collected market and accounting information, as shown below.

Year	1	2	3
Free cash flow	100,000	112,000	122,000

Market value of debt = 800,000

Cost of debt = 5.2%

Stock price = $64

Number of shares outstanding = 25,000

Equity beta = 1.30

Cash on balance sheet = 400,000

Terminal growth rate = 4%

Risk-free rate = 4%

Market risk premium = 6%

Tax rate = 30%

1. Estimate the WACC under the assumption that all cash on the balance sheet is operating cash (i.e., there is no excess cash).

WACC = 9.08%

2. What stock price is implied by the discounted cash flow analysis?

Stock price = $56.17

3. Re-calculate the WACC under the assumption that half of the cash on the balance sheet is excess cash.

WACC = 9.57%

4. What stock price is implied by the discounted cash flow analysis if we assume half of the cash is excess cash?

Stock price = 56.36