Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $12.50 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 2016 will be 3% rather than 2%. What effect would this finding have on your responses in parts a and b?

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Free cash flow Year (t) FCFOther data $ | 2013 2014 2015 2016 700,000 800,000 | Weighted average cost of capita|-8% 950,000Market value of all debt $2,700,000 Growth rate of FCE beyond 2013 to infinity 2% 1,100,000 | $1,000,000 Market value of preferred stock Number of shares of common stock outstanding 1,100,000