Union Pacific Railroad (UNP) had net income of $4,388M in 2013 after interest expenses of $803M. (The tax rate was 38%.) Depreciation was $1,777M, and capital spending was $3,405M. The firm had $12,990M in debt on the books, rated A-, with an average yield to maturity of 3.5%, trading at par. The stocks beta was 1.02, and there were 456M shares outstanding with a book value of $19,877M, trading at $168 per share. Union Pacific's working capital needs were negligible, and the firm had $1,432M in cash. The Treasury bond rate was 3%, and the risk premium was 5%. a. Find EBIT and estimate the free cash flow to the firm in 2013. b. What is the firms return on capital (ROC)? What fraction of after-tax operating income is the firm reinvesting? Use these to estimate the growth rate of cash flows (g = ROC ). c. Assume the firms income will grow at this rate for seven years, after which growth will decline to 3% thereafter due to falling returns on capital. Use a two-stage model to estimate the value of the firm at the end of 2013 using the FCF approach. Also, estimate the value of equity, and the value per share. d. Estimate the free cash flow to equity in 2013. (The firm added $452M to debt in 2013.) e. What is the firms return on equity (ROE)? What fraction of net income is the firm reinvesting? Use these to estimate the growth rate of net income (g = ROE ). f. Assume the firms earnings will grow at this rate for seven years, after which growth will decline to 3% thereafter due to falling returns on equity. Use a two-stage model to estimate the value of equity at the end of 2013 using the FCFE approach (dont forget to add cash). Also, estimate the value per share. g. Union Pacific paid a dividend of $2.96 per share in 2013. What fraction of 2013 FCFE does this represent? Would the dividend discount valuation model work well for this firm?