Problem Five: Equity Valuation
in the Table Below Is Selected

Essay

Problem Five: Equity Valuation
In the table below is selected information for Sprigue Company.
All figures are in thousands and represent expectations of the future. $\begin{array}{|l|r|r|r|r|r|}\hline \text { Year } & {2005} & 2006 & {2007} & 2008 & 2009 \\\hline \text { Net Income } & \$ 5,175 & \$ 6,210 & \$ 7,462 & \$ 8,570 & \$ 8,998 \\\hline \text { Dividends } & 773 & 932 & 1,118 & 1,285 & 2,250 \\\hline \text { Depreciation } & 621 & 702 & 793 & 896 & 1,013 \\\hline \text { Increase in working capital } & 675 & 1,035 & 1,242 & 1,118 & 428 \\\hline \text { Capital expenditures } & 5,625 & 8,625 & 10,350 & 9,315 & 3,571 \\\hline \text { New Debt issued } & 900 & 4,500 & 5,500 & 3,900 & 0 \\\hline \text { Old Debt retired } & 987 & 750 & 990 & 2,000 & 2,000 \\\hline \text { New Equity issued } & 1,823 & 0 & 0 & 0 & 0\\\hline\end{array}$
a. Calculate the expected free cash flow to equity for the years 2005 to 2009.
b. Explain the expected changes in debt levels over the five years