Calculate the i) present value of the equity, ii) present value of the firm, and iii) present value of a common stock using the relevant cash flows and appropriate discount rates. Current FCFE is $15, D0 is 10% for three years and 15% beyond three years. The firms tax rate is 10% and cost of debt is 11%, The firm is financed with 60% debt and 40% equity. Risk free rate is 7%, market risk premium is 6% and the firms beta is 2. (15 marks)

Year Free cash flow to firm (FCFF) $25 Dividends $1.3 0 1 2 3 Free cash flow to equity (FCFE) $15