Calero Inc. is a publicly-traded firm, with 25 million shares trading at $16/share (book value of equity is $250 million), $300 million in debt outstanding (market and book value), and $50 million as a cash balance. The company generated $60 million in after-tax operating income last year and is expected to maintain its current return on capital in perpetuity. The cost of equity for the firm is 12% and the cost of capital is 10% in perpetuity.

a. Assuming that the company is expected to grow its operating income 9% a year for the next three years and 3% a year thereafter in perpetuity, estimate the value of the operating assets of the firm today.

b. Given your valuation in part a, how under or overvalued is the stock today.