RRTA K-LINE Ltd is a stable growth firm in the shipping industry. K-LINE reported an EBIT of $300 million in its most recent fiscal year end. The firm's book value of capital is $1.5 billion. The growth rate for KLINE is expected to be 5% a year in perpetuity. K-LINE has a regression beta of 1.2 and a pre-tax cost of debt of 6%. The firm's market value of equity is $1 billion and market value of debt is $500 million. At its current debt level, the probability of default for the firm is 5% and the cost of bankruptcy is 20% of the unlevered firm value. Assuming that tax rate = 30%, risk-free rate = 3%, and market risk premium = 5%; perform the following valuation: ke = 3% +1.2 85% (a) Estimate the value of the firm using the cost of capital approach. WACC = 6% *(1-30%) x 80 (b) Estimate the value of the firm using the APV approach. - 7.44 + 3% X2 29 68.103 xhos