At the beginning of year $1,$ Down Under Company raises $60$ million of equity and uses the proceeds to buy a fixed asset.

Expected operating profits before depreciation $($all received in cash$)$ and dividends for the company are $40$ million in year $1,50$ million in year $2,$ and $60$ million in year $3,$ at which point the company terminates $($having a terminal value of zero$).$

The firm pays no taxes. Assuming straight$-$line depreciation to zero $($of $20$ million per year$),$ the firm's profits thus equal $20$ million in year $1,30$ million in year $2,$ and $40$ million in year $3.$

The cost of equity capital for this firm is $10$ percent.