Your employer, a mid-sized human resources management company, is considering expansion into related fields, including the acquisition of Temp Force Company, an employment agency that supplies word processing operators and computer programmers to business with temporary heavy workloads. Your employer is also considering the purchase of a Biggerstaff and Biggerstaff (B&B), a privately held company owned by two brothers, each with 5 million shares of stock. B&B currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&B's financial statements report marketable securities of $100 million, debt of $200 million, and preferred stock of $50 million. B&B's WACC is 11%. Answer the following questions.

j. Use a pie chart to illustrate the sources that comprise a hypothetical companys total value. Using another pie chart, show the claims on companys value. How is equity a residual claim?

k. Use B&Bs data and free cash flow valuation model to answer the following questions.

what is its estimated intrinsic stock price per share?

l. You have just learned that B&B has undertaken a major expansion that will change its expected free cash flows to $10 million in 1 year, $20 million in 2 years, and $35 million in 3 years. After 3 years, free cash flow will grow at a rate of 5%. No new debt or preferred stock were added, the investment was financed by equity from the owners. Assume the WACC is unchanged at 11% and it that there are still has 10 million shares of stock outstanding.

1. What is its horizon value (i.e., its value of operations at year three)? What is its current value of operations (i.e., at time zero)?

2. What is its estimated intrinsic value of equity on a price per share basis?