Kollmorgen Corporation a diversified technology company reported sales of $194.9

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.YearNet Income1987$0.3 million1988$11.5 million1989-$2.4 million1990$7.2 million1991-$4.6 millionThe
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 1992and 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.Assumingthattheaverageearningsfrom1987to1992representsthe
normalized earningsestimatethenormalizedearningsandfreecashflowtoequity.b.Estimate the value per share.