At the beginning of year 1, Down Under Company raises $60 million of equity and uses the proceeds to buy a fixed asset. Operating profits before depreciation (all received in cash) and dividends for the company are expected to be $40 million in year 1, $50 million in year 2, and $60 million in year 3, at which point the company terminates. The firms pays no taxes. Assuming straight line depreciation to zero (of 20 million per year) the firm's profits thus equal $20 in year 1, $30 million in year 2 and $40 milion in year 3. If the cost of equity is 6%, the value of the firm's equity is:

(10 Points) Use the Discounted Dividend Valuation Method:

(10 Points) Use the Abnormal Earnings Valuation Method:

Hint: Book Value per year is affected by the 20 million every year