Atlantic Cruise Lines operates cruise ships and is headquartered in Florida. The firm had \($100\) million in pretax operating income in the current year, of which it reinvested \($25\) million. The firm expects its operating income to grow 4% in perpetuity, and expects to maintain its existing reinvestment rate. Atlantic has a capital structure composed 60% of equity and 40% of debt. Its cost of equity is 12% and it has a pretax cost of borrowing of 8%. The firm currently faces a tax rate of 40%.

a. Estimate the value of the firm.

b. Assume now that Atlantic Cruise Lines will move its headquarters to the Cayman Islands. If its tax rate drops to 0% as a consequence, estimate the effect on value of the shift.