Let's solve each part step-by-step: --- ### **a. Calculate the amount of FCFE per share for the year 2018.** **Formula for FCFE:** \[ \text{FCFE} = \text{Net Income} + \text{Depreciation} - \text{Capital Expenditures} - \text{Increase in NWC} + \text{Net Borrowing} \] Where: - **Increase in NWC** = NWC\(_{2018}\) - NWC\(_{2017}\) - **Net Borrowing** = (Long-term debt\(_{2018}\) + Short-term debt\(_{2018}\)) - (Long-term debt\(_{2017}\) + Short-term debt\(_{2017}\)) - *Short-term debt is not listed separately, assume zero or all is in current liabilities; we'll use long-term debt only as net borrowing.* #### **Step 1: Find values from the table for 2018** - Net Income = **$75 million** - Depreciation = **$35 million** - Capital Expenditures = **$50 million** - NWC\(_{2017}\) = **$220 million** - NWC\(_{2018}\) = **$270 million** - Long-term debt\(_{2017}\) = **$50 million** - Long-term debt\(_{2018}\) = **$80 million** #### **Step 2: Calculate each component** - **Increase in NWC** = $270M - $220M = **$50M** - **Net Borrowing** = $80M - $50M = **$30M** #### **Step 3: Plug into FCFE formula** \[ \text{FCFE} = 75 + 35 - 50 - 50 + 30 = 75 + 35 - 100 + 30 = 140 - 100 = 40 + 30 = \boxed{70\, \text{million}} \] #### **Step 4: Calculate FCFE per share** - Common shares outstanding = **100 million** \[ \text{FCFE per share} = \frac{70\, \text{million}}{100\, \text{million}} = \boxed{\$0.70} \] --- ### **b. Calculate Projected 2021 Terminal Value per share based on constant growth of 14%** #### **Step 1: Project FCFE for 2019, 2020, 2021** - 2018 FCFE = $70M - Growth for next 3 years = 40% \[ \begin{align*} \text{2019 FCFE} &= 70 \times 1.4 = 98 \\ \text{2020 FCFE} &= 98 \times 1.4 = 137.2 \\ \text{2021 FCFE} &= 137.2 \times 1.4 = 192.08 \\ \end{align*} \] #### **Step 2: Terminal Value formula (Gordon Growth Model)** \[ \text{Terminal Value}_{2021} = \frac{\text{FCFE}_{2021} \times (1+g)}{r - g} \] Where: - \( \text{FCFE}_{2021} = \$192.08 \) million - \( g = 14\% = 0.14 \) - \( r = 15\% = 0.15 \) \[ \text{Terminal Value}_{2021} = \frac{192.08 \times 1.14}{0.15 - 0.14} = \frac{218.97}{0.01} = \$21,897 \text{ million} \] #### **Step 3: Per share value** - Shares outstanding = 100 million \[ \text{Terminal Value per share} = \frac{21,897}{100} = \boxed{\$218.97} \] --- ### **c. Calculate the current value of a share of the stock based on the two-stage FCFE model.** #### **Step 1: Discount FCFE and Terminal Value to present** \[ \text{Value} = \sum_{t=1}^{3} \frac{\text{FCFE}_t}{(1+r)^t} + \frac{\text{Terminal Value}_{2021}}{(1+r)^3} \] - \( \text{FCFE}_1 = 98 \) - \( \text{FCFE}_2 = 137.2 \) - \( \text{FCFE}_3 = 192.08 \) - \( \text{Terminal Value}_{2021} = 21,897 \) - \( r = 0.15 \) \[ \begin{align*} \text{PV(FCFE}_1) &= \frac{98}{1.15} = 85.22 \\ \text{PV(FCFE}_2) &= \frac{137.2}{(1.15)^2} = \frac{137.2}{1.3225} = 103.75 \\ \text{PV(FCFE}_3) &= \frac{192.08}{(1.15)^3} = \frac{192.08}{1.520875} = 126.33 \\ \text{PV(Terminal)} &= \frac{21,897}{1.520875} = 14,393.98 \\ \end{align*} \] Total PV = 85.22 + 103.75 + 126.33 + 14,393.98 = **14,709.28 million** #### **Step 2: Per share value** \[ \text{Per Share Value} = \frac{14,709.28}{100} = \boxed{\$147.09} \] --- ## **Summary of Answers** **a. FCFE per share for 2018:** \[ \boxed{\$0.70} \] **b. Projected 2021 terminal value per share:** \[ \boxed{\$218.97} \] **c. Current value of a share (two-stage FCFE):** \[ \boxed{\$147.09} \] --- **If you need further breakdown or more explanation, let me know!**