ed on XYZ is a company that manufactures networking software. In the current year, the firm reported operating earnings before interest and taxes of $250 million. The firm spent $50 million on capital expenditures and $20 on working capital. The depreciation expense was $35 million. The earnings, capital expenditures, working capital and depreciation are expected to grow 7 percent for 3 years and levels at 3 percent a year in perpetuity after that. The firm has the following sources of financing: Debt: 60,000 bonds with a coupon rate of 7 percent, par $1000 and a current price quote of 95 percent of par; the bonds have 10 years to maturity. 130,000 zero coupon bonds, par $1000 with a price quote of 17.5 percent and 20 years until maturity. Preferred stock: 110,000 shares of 4 percent preferred stock with a current price of $81, and a par value of $100 Common stock: 2,200,000 shares of common stock; the current price is $45, and the beta of the stock is 1.25. Market: The corporate tax rate is 40 percent, the market risk premium is 6 percent, and the risk- free rate is 4 percent. Find the value of the firm. B I E =