Chung Cheng asks you to estimate the value of its equity. Management plans to maintain debt at 40% of the company's present value, and at this capital structure the company's debtholders will demand a return of 7% and stockholders will require 12%. The company is forecasting that next year's operating cash flow (depreciation plus profit after tax at 40%) will be $60 million and that investment expenditures will be $25 million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 3% a year.

a. What is the total value of Chung Cheng?

b. What is the value of the company's equity?

Calculation process is required