Exercise 1 :

Brushy Mountain Mining Company's coal reserves are being depleted, so its sales are falling. Also, environmental costs increase each year, so its costs are rising. As a result, the company's free cash flows are declining at the constant rate of 3% per year. If its current free cash flow (FCF₀) is $2 million and its weighted average cost of capital (WACC) is 17%, what is the estimated value of Brushy Mountain's value of operations? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answer to two decimal places.

Exercise 2 :

The real risk-free rate of interest is 2%. Inflation is expected to be 3% this year and 4% during each of the next 2 years. Assume that the maturity risk premium is zero.

What is the yield on 2-year Treasury securities? Round your answer to two decimal places.

%

What is the yield on 3-year Treasury securities? Round your answer to two decimal places.

%