This is a problem that has TWO questions. Therefore, please choose TWO answers (one choice for each question) to get full credit for this questions, otherwise you will only get partial points.

Using the information below, answer the questions:

• Firm named Galaxy has a free cash flow (FCF) of $13 million.
• Galaxy's net income is $50million and total book equity is $105million
• Galaxy's debt-to-equity ratio is 1.25
• Galaxy's market value of debt is 150 million
• Galaxy's tax rate is 25%
• Galaxys FCF and earnings will grow at a constant rate of 3%
• Galaxys equity beta is 1.3
• US 3 month T-bill rate is 1.5%
• S&P 500 market return is 7.5%
• Currently Galaxy Interiors do not pay dividends.
• There are 10 million shares outstanding.

#1) What should be the fair stock value per share using the Residual Income Model (RIM) ?

#2) What should be the fair stock value per share using the Free Cash Flow (FCF) Valuation model?

		#1) stock price per share with RIM = approx. $24
		#1) stock price per share with RIM = approx. $77
		#1) stock price per share with RIM = approx. $15
		#1) stock price per share with RIM = approx. $69
		#2) stock price per share with FCF model = approx. $59
		#2) stock price per share with FCF model = approx. $84
		#2) stock price per share with FCF model = approx. $38
		#2) stock price per share with FCF model = approx. $41