Luminos Corporation, a manufacturer of lightbulbs, is a firm in stable growth. The firm reported net income of \($100\) million on a book value of equity of \($1\) billion. However, the firm also had a cash balance of

\($200\) million on which it earned after-tax interest income of \($10\) million last year. (This interest income is included in the net income, and the cash is part of the book value of equity.) The cost of equity for the firm is 9%.

a. Estimate the noncash return on equity at Luminos Corporation.

b. If you expect the cash flows from the operating assets of Luminos to increase 3% a year in perpetuity, estimate the value of equity at Luminos.