William (Bill) Smith, CFO of Universal Technologies, Inc. (UT), has received an offer from Bigalow General Corporation (BG) to purchase the common stock of UT for the price of $20.00 per share. Based on this offer, Bill has asked you construct a valuation of UT's common stock.

Based upon this request you have constructed a set of projections for UT for years 2019 - 2023 (See Attached Appendix "A"). After 2023, you have determined that Free Cash Flows will grow at a constant rate or 4% per year. In addition to the projections, you have the following information about UT and the financial markets.

UT has a $1.5 billion Commercial Line of Credit that carries a variable interest rate priced at the Prime Rate of interest as published from time to time by the Wall Street Journal. UT has $1.2 billion of $1,000 par value bonds that carry a coupon interest rate of 5.75%, payable annually. The bonds mature 7 years from now, and currently sell in the secondary market at $887 per bond.

UT has issued $500 million of $100 par value perpetual preferred stock that carries a preferred dividend of 6.50%. UT's preferred stock currently sells in the secondary market at $92.50 per share.

UT has 68.5 million shares of common stock outstanding.

You have noted that the yield on the short-term Treasury Bill is 1.50%. You have estimated that the beta for UT's stock is 1.2 and that the anticipated stock market return is 11.25%.

In order to estimate the value of UT's stock, you have determined that you must calculate the future Free Cash Flows for UT, estimate UT's Weighted Average Cost of Capital and then use the Corporate Valuation Model to compute the value of UT's stock. Based upon your findings, Bill has requested that you recommend whether or not UT should accept BG's offer.

Appendix "A" Universal Technologies, Inc. Balance Sheet (In Millions of Dollars) 2018 2019 2020 2021 2027 2023 Actual Est. Ert Est Est Est Assets Current Assets Cash S 550 S 616 682 S 719 S 762 Inventory 1,153 1,291 1,408 1.506 1,596 1,676 Accounts Recehable TTS 1,012 1.073 1.126 Total Current Assets 2,478 2,775 3,035 3,237 3/431 3,603 Long Term Assets Machinery, Plant & Equipment 2,225 2.492 2,716 2.906 3,081 3.235 Total Assets 4.703 5 267 $ 5751 6 143 5 6512 5 6837 Liabilities & Owner's Equity Current Liabilities Accounts Receivable 225 S 275 312 327 Accruals 110 123 135 14 153 160 Line of Credit 304 1.169 1.200 1,336 1.302 1.190 Total Current Liabilities 1,239 1,544 1,720 1,774 1,766 1,677 Long-term Bonds 1,200 1.200 1,200 1,200 1,200 1,200 Owner's Equity Preferred Stock 500 SOO SOD SOD Common Stock 1,500 1.500 1,500 1.500 1.500 1.500 Retained Earnings 264 EZS 1,169 1.546 1,950 Total Owner's Equity ,264 2.523 2,831 .169 1.54 3,960 Total Liabilities & Owner's Equity 4.703 $ 5751 6.143 $ 6512 $ 6837