Green Planet, Inc., a manufacturer of air filter systems for industrial facilities, is considering the addition of a new system to its current product line. The following data has been forecasted:

2012 2013 2014 2015

Depreciation: 30,000 35,000 40,000 45,000

EBIT: 100,000 125,000 150,000 175,000

Investment in Operating Assets: 30,000 40,000 50,000 60,000

The market value of the firm's debt is $0.5M, and it has $150K in marketable securities. The company also has 10K of preferred stocks that just paid an annual dividend of $0.75. Investors require a rate of return of 7% on preferred stocks of similar risk. Moreover, the firm has 200K shares of stock outstanding and its weighted average cost of capital is 15%. The expected tax rate is 35% in the next two years and 40% after that.

a.Calculate the free cash flow for each of the next three years.

b.After 2015 the firm's free cash flow is expected to grow at 5% per year indefinitely. What is the value of the stock today?