Chavez Enterprises is a small Venezuelan company. The firm is profitable and is expected to generate 120 million bolivars in after-tax operating income next year on capital invested (book value) of 600 million bolivars. You have estimated a cost of capital of 12% for the firm and expect it to grow 4 percent a year in perpetuity.

a. Estimate the value of the firm today.

b. Now assume that you are concerned that the firm may be nationalized. If nationalization occurs, you will be paid book value for the assets. Assuming a 30% probability for nationalization, estimate the value of the firm today.