Question

Gunco Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of it earnings. In other words, Gunco does not pay any dividends and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Gunco’s stock. The pension fund manager has estimated Gunco’s FCF for the next 4 years as follows: $7 million, $5 million, $12 million, and $18 million. After the forth year, FCF is projected to grow at a constant 5.5%. Gunco’s WACC is 10%, the market value of its debt and preferred stock totals $65 million, and it has 100 million shares of common stock outstanding. What is an estimate of Gunco’s price per share? You must show your work (your calculator inputs and math) to receive full credit.