4. Tomkat Corp. has only a single asset. This asset generates operating cash flow of $300,000 per year, in perpetuity. Tomkat also has a single liability, which is a perpetual bond (the maturity date is infinitely far in the future) that has a face value of $1 million and that pays coupon interest at a rate of 6% once per year. The appropriate discount rate for the asset is 10%, while that for the bond is 5% per year.

(a) (6 points) What is the value of Tomkats equity?

Assume now, that in addition to the asset and liability described above, Tomkat is working on a new project. The project requires an immediate investment of $400,000, and will require another investment of $600,000 a year from now. Two years from now the project will generate a positive operating cash flow of $60,000. Three years from now it will generate a positive operating cash flow of $140,000, and subsequent operating cash flows will grow by 2% per year in perpetuity. The appropriate discount rate for this project is 12% per year.

(b) (12 points) What is the value of Tomkats equity given the existence of this growth opportunity?

Please provide a stepwise detailed answer.