In 2011, No Growth Incorporated had operating income before interest and taxes of $220 million. The firm was expected to generate this level of operating income indefinitely. The firm had depreciation expense of $10 million that year. Capital spending totaled $20 million during 2011. At the end of 2010 and 2011, working capital totaled $70 million and $80 million, respectively. The firm€™s combined marginal state, local, and federal tax rate was 40%, and its outstanding debt had a market value of $1.2 billion. The ten-year Treasury bond rate is 5%, and the borrowing rate for companies exhibiting levels of creditworthiness similar to No Growth is 7%. The historical risk premium for stocks over the risk-free rate of return is 5.5%. No Growth€™s beta was estimated to be 1.0. The firm had 2.5 million common shares outstanding at the end of 2011. No Growth€™s target debt€“to€“total capital ratio is 30%.

a. Estimate free cash flow to the firm in 2011.
b. Estimate the firm€™s weighted average cost of capital.
c. Estimate the enterprise value of the firm at the end of 2011, assuming that it will generate the value of free cash flow estimated in (a) indefinitely.
d. Estimate the value of the equity of the firm at the end of 2011.
e. Estimate the value per share at the end of2011.

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Abbreviated Financial Statements for Fletcher Corporation $ million) 2010 2011 Revenues Operating expenses Depreciation Earnings before interest and taxes Less in terest expense Less taxes Equals: net income Addendum Yearend working capital Principal repayment Capital expenditures 600 18 72 16 64 23.6 35.4 40.2 150 25 20 200 25 10