Barrett Industries invests a large sum of money in R & D; as a result, it retains and reinvests all of its earnings. In other words, Barrett 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 Barrett's stock. The pension fund manager has estimated Barrett's free cash flows for the next 4 years as follows: $3 million, $6 million, $10 million, and $15 million. After the fourth year, free cash flow is projected to grow at a constant 7%. Barrett's WACC is 12%, its debt and preferred stock total $60 million, and it has 10 million shares of common stock outstanding.
a. What is the present value of the free cash flows projected during the next 4 years?
b. What is the firm's terminal value?
c. What is the firm's total value today?
d. What is an estimate of Barrett's price per share?