Use the following information to answer questions 7-9

The estimated sales are $20,000,000. The EBIT is 60% of sales. Depreciation is $70,000. Capital expenditures are 3% of sales. The increase in net working capital is $50,000. There are 1,000,000 shares outstanding.

Q8. Assume the estimated free cash flow per share is $1. Assuming the discount rate is 10% and the growth rate is 20%. In this case:

a. This stock is worth nothing because the answer is negative

b. $10

c. Less than $10

d. The stock price cannot be computed based on this data.

Q9. Assume the stock price in the above problem is computed as $20 with a margin of error at 10%. Also, assume the stock is currently trading at $19.

a. This is a buy stock (recommend to buy)

b. This is a sell stock (recommend to sell)

c. This is both a buy stock and a sell stock

d. The margin of error is too narrow in this case

e. We take no action (do not buy; do not sell.)