Opex Capital is a small investment advisory firm located in

Portland, Oregon, that has been hired by Winston Winery to estimate the value of Hilco

Wines. Hilco is a small winery that is being considered for purchase by Winston. Opex

has obtained the financial statements of Hilco and prepared the following estimates of

the firms free cash flow for the next five years:

Year Cash Flows

1 $100,000

2 120,000

3 135,000

4 150,000

5 175,000

Year Cash Flows

1 $1,200,000

2 1,260,000

3 1,323,000

4 1,389,150

5 1,458,608

At the end of five years, Opex has estimated that the winery should be worth approximately five times its Year 5 cash flow.

a. If the appropriate discount rate for valuing the winery is 15%, what is your estimate

of the firms enterprise value?

b. Winston Winery plans to borrow $400,000 to help finance the purchase. What is

Hilcos equity worth?

My questions is how to answer question B here?