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) 4) a) Corporate bonds for ECN Inc. have an annual yield to maturity of 12% and market value of $18,000. Preferred shares of ECN Inc. just paid a dividend of S1 per share and are expected to grow by 2% every year. The market discount rate for ECN Inc. preferred shares is 8% and there are 1000 preferred shares outstanding. Common shares of ECN Inc. currently are $2 per share with 15000 shares outstanding. The market discount rate for common shares is 15%. The tax rate is 20% for all corporations. If historically the P-E ratio is 15 for corporations like ECN Inc. and ECN Inc's most recent profit was $1500, is ECN Inc.'s stock over or under-valued by the market based on the P-E Ratio? Calculate the weighted average cost of capital for ECN Inc. ECN Inc. does not pay dividends on its common shares. It's free cash flow today was $5000. That is projected to increase for the next three years by 10% annually. After that it is only projected to increase by 3% forever after. Calculate the estimated value of ECN Inc. today using the WACC you calculated in part b). What is the estimated share price of ECN Inc. based on your calculation in part c)? Based on the estimated share price of ECN Inc. in part c), is ECN Inc. over- or under-valued? Briefly explain. b) c) d) e)

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