Continental Appliance Corp. is one of the largest firms in its industry in North America. Tables 1 through 3 present the financial statements, which are prepared according to U.S. Generally accepted Accounting Principles (GAAP), and related information for the company. Table 4 presents relevant industry and market data. Table 5 presents selected information for the company and industry.
  Table 1: Continental Appliance Corp.
Summary Balance Sheets on December 31 (U.S. $ millions)

Table 2: Continental Appliance Corp.
Summary Income Statement for the Year Ended 31 December 2006 (U.S. $ millions)
Revenue .......................................................................................................................300.80
Total Operating Expenses............................................................................................ (171.74)
Operating Profit ..............................................................................................................127.06
Gain on Sale ......................................................................................................................4.00
Earnings before Interest, Taxes, Depreciation & Amortization.....................................131.06
Depreciation and Amortization Expense........................................................................ (71.17)
Earnings before Interest and Taxes (EBIT)................................................................... (59.89)
Interest ............................................................................................................................ (12.93)
Net Income ........................................................................................................................30.16
  
Table 3: Continental Appliance Corp.
Common Equity Data and Supplemental Notes for 2006
Dividend Paid (U.S. $ millions) .....................................................................$3.20
Weighted Average Shares Outstanding During 2006 ...........................16,000,000
Dividend per Share ........................................................................................$0.20
Beta ..................................................................................................................1.80
The Dividends per Share Payments are expected to be Constant
Continental had $75m in Capital Expenditures During 2006
 
Table 4: Industry and Market Data
31 December 2006
Risk-free Rate of Return ............................................................5.00%
Equity Market Risk Premium ....................................................6.00%
Expected Industry Growth Rate ...............................................12.00%
a. The management of Global Machinery, Inc., a notable competitor in the industry, is considering acquiring shares of Continental Appliance Corp. and would like you to help analyze the value of the company. To begin, based on Continental€™s past performance, you are advised to assume that the company will grow at the same rate as the industry. Calculate the price per share of Continental Appliance Corp. on 31 December 2006 using the Gordon constant dividend growth model. Show your calculations.
(b)   Calculate Continental€™s free cash flow to the firm (FCFF) for 2006. Show yourwork.

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Cash Accounts Receivable Inventorv 2006 13.00 30.00 209.06 252.06 2005 5.87 27.00 189.06 221.93 Current Assets Gross Fixed Assets Accumulated Depreciation 474.47 409.47 (154.17 (90.00) Net Fixed Assets 319.47 Total Assets 572,36 541.40 Accounts Pavable 25.05 26.05 25.05 240.00 265.05 160.00 147.31 307.31 572,36 26.05 245.00 271.05 150.00 120.35 270.35 541.40 Current Liabilities Long-tem Debt Total Liabilities Common Stock Retained Eamings Total shareholders' Equity Total Liabilities and Shareholders' Equity