Question 8 (7 marks)

Beach & Company reported net income of $40 million for last year. Depreciation expense totaled $18 million and capital expenditures came to $8 million. Free cash flow is expected to grow at a rate of 5% for the foreseeable future.

Beach faces a 40% tax rate and has a 0.50 debt to equity ratio. Beachs asset and equity beta is 0.96 and 1.25 respectively. The risk-free rate is currently 4.5% and the market risk premium is estimated to be 8%. Determine the current value of Beach & Company (in millions) with justification.