assuming that the average earnings from 1987 to 1992 represents the normalized earni 546332

Kollmorgen Corporation, a diversified technology company, reported sales of $194.9 million in 1992 and had a net loss of $1.9 million in that year. Its net income had traced a fairly volatile course over the previous five years.

The stock had a beta of 1.20 and the normalized net income is expected to increase 6% a year until 1996, after which the growth rate is expected to stabilize at 5% a year (The beta will drop to 1.00). The depreciation amounted to $8 million in 1992 and capital spending amounted to $10 million in that year. Both items are expected to grow 5% a year in the long term. The firm expects to maintain a debt ratio of 35%. (The treasury bond rate is 7%.)

a. Assuming that the average earnings from 1987 to 1992 represents the normalized earnings, estimate the normalized earnings and free cash flow to equity.

b. Estimate the value per share.