Using the free cash flow valuation model to price an IPOPersonal Finance ProblemAssume that it is the end of year 2015 and you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $8.50 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've developed from a variety of data sources. The key values you have compiled are summarized in the following table,

a. Use the free cash flow valuation model to estimate CoolTech's common stock value per share.

b.Judging on the basis of your finding in part a and the stock's offering price, should you buy the stock?

c. On further analysis, you find that the growth rate in FCF beyond 2019 will be 6% rather than 5%. What effect would this finding have on your responses in parts a and b?

Free cash flow
Year (t)	FCF			Other data
2016	$750,000			Growth rate of FCF, beyond 2019 to infinity= 5%
2017	$830,000			Weighted average cost of capitalequals= 12%
2018	$920,000			Market value of all debt= $2,470,000
2019	$1,020,000			Market value of preferred stock= $990,000
				Number of shares of common stock to be issue=1,100, 000