Company X has 5 million shares outstanding. It produces EBIT of 400 million ISK each year, without risk, forever. Annual CAPEX is equal to annual depreciation and there are no changes in net working capital over time. The corporate tax rate is20% and the risk free rate is 5% p.a.

a)Assume that the company is unlevered and that every year the free cash flows will be entirely distributed to shareholders as dividends. What is the value of one share of stock of this company?

b)Now assume that the companyis not fully equity financed, but is partially financed with debt.Debt will be constant and will require annual interest payments of 100 million ISK, forever. What is the value of one share of stock in this situation?