1. In the Chapter 2 discussion assignment, you were provided with the following information for the Luna Lighting Company:
Luna Lighting Company
Balance Sheets as of December 31, 2021, and 2022
2021 2022
Accounts Payable $ 361 $ 444
Short-term Notes Payable 315 270
Long-term Deferred Taxes 318 412
Long-term Debt 2,869 2,956
Common Stock 456 610
Retained Earnings 4,591 4,741
Total Liabilities & Equity $8,910 $9,433
2021 2022
Cash $ 141 $ 184
Marketable securities 56 32
Accounts receivable 1,025 1,167
Inventory 918 963
Net Fixed Assets 6,770 7,087
Total Assets $8,910 9,433
a. Considering the left-hand side of the cash flow identity (cash flows from assets associated with investment activities), determine Luna Lighting Company’s free cash flow (FCF) for the year 2022.
b. Luna has 1,000 shares of common stock outstanding. Under the assumption that FCFs will grow by 2 percent into the foreseeable future, compute an estimate of the price per share based on FCFs if investors require a 9 percent return.
c. If Luna’s current dividend is also expected to grow at 2 percent into the foreseeable future, what would the estimated price per share be?
