Corporate tax rate: $38\%$

$$ Cost of equity is $16\%,$ cost of debt is $10\%,$ and debt ratio is $50\%$

$$ Interest coverage ratio $($defined as EBIT$-$to$-$interest expense$)$ is $10$

$$ After $2011,$ EBIT are expected to grow at $3\%$

a$.$ Estimate the free cash flows of Peg Inc. for the $4$ years $2008$ to $2011$ and compute the

enterprise value as of year$-$end $2007.$

b$.$ Estimate the free cash flows to equity holders for the $4$ years $2008$ to $2011$ and compute the

equity value as of year$-$end $2007$

c$.$ Compute the debt value as of year$-$end $2007$