Ionex Ltd., a leader in the development and manufacture of ion systems, reported earnings per share of $2.02 in 2012, and paid no dividends. These earnings are expected to grow 14% a year for five years (2013 to 2017) and 7% a year after that. The firm reported depreciation of $2 million in 2012 and capital spending of $4.20 million, and had 7 million shares outstanding. The working capital is expected to remain at 50% of revenues, which were $106 million in 2012, and are expected to grow 6% a year from 2013 to 2017 and 4% a year after that. The firm is expected to finance 10% of its capital expenditures and working capital needs with debt. Ionex had a beta of 1.20 in 2012, and this beta is expected to drop to 1.10 after 2017. The Treasury bond rate is 7%. The historical equity risk premium is 6%.

a. Estimate the expected free cash flow to equity from 2013 to 2017, assuming that capital expenditures and depreciation grow at the same rate as earnings.

b. Estimate the terminal price per share (at the end of 2017). Stable firms in this industry have capital expenditures which are 150% of depreciation, and maintain working capital at 25% of revenues.

c. Estimate the value per share today, based upon the FCFE model.