An analyst has chosen a reputed paint company to analyse and make recommendation. He has collected the information from the recent published annual report. The paint Company earned a net profit margin of 20% on revenues of 20 million this year. Fixed capital investment was 2 million, and depreciation was 3 million. Working capital investment equals 7.5% of sales every year. Net income, fixed capital investment, depreciation, interest expense, and sales are expected to grow at 10% per year for the next five years. After five years, the growth in sales, net income, fixed capital investment, depreciation, and interest expense will decline to a stable 5% per year.

Page 2 of 2 The tax rate is 40%, and the company has 1 million shares of common stock outstanding and long-term debt paying 12.5% interest trading at its par value of 32 million. Calculate the value of the firm and its equity using the FCFF model if the WACC is 17% during the high-growth stage and 15% during the stable stage.