The table below contains some information about the Black Hills Air Co. Using the information answer the following questions. Please show all your work great detail!

Black Hills Air Co. 2019 and 2020 Balance Sheet ($ in millions)

Year Year

2019 2020 2019 2020

Assets Liabilities

Cash 84 98 Accounts payable 312 344

Accounts receivable 165 188 Notes payable 231 204

Inventory 393 422 Long-term debt 531 457

Total current assets 642 708 Total debt 1,074 1,005

Net plant and equip 2,731 2,922

Owners Equity

Common stock 500 510

Retained earnings 1,799 2,115

Total equity 2,299 2,625

Total assets 3,373 3,630 Total liability & equity 3,373 3,630

Black Hills Air Co. 2020 Income Statement ($ in millions)

Sales 2,361

Cost of goods sold 1,344

Depreciation 276

Earnings before interest and taxes (EBIT) 741

Interest paid 141

Taxable income 600

Taxes (21%) 126

Net income 474

Dividends 158

Addition to retained earnings 316

Other information

Risk-free rate of return (T-bill) 3%

Market portfolio return (S&P 500) 12%

BHACs stock beta () 1.2

Number of shares outstanding 33 millions

Annual growth rate of free cash flow (FCF) 8.39%

a. What are the sustainable growth rate?

b. What are the required return for BHAC?

c. According to the constant dividend growth model, what is your estimation for the current share price of BHAC?

d. Assume the sustainable growth rate and required return you calculated are valid. Use the clean surplus relationship to calculate the share price for BHAC with the residual income model (RIM).

e. Now, you are going to value BHAC using the FCF model.

1) What is the asset beta of BHACs (Asset)?

2) What is the appropriate discount rate (r)?

3) What is BHACs free cash flow in 2020?

4) Estimate the BHACs share price using the FCF model.