The XYZ Company has a historical growth in its free cash flows of 4% with little variability. With the addition of a new plant and equipment, however, you expect that free cash flows will grow 7% in year 1, 5% in year 2, and 5% thereafter. The firms last free cash flow was $175,000. The firm has a required rate of return of 10%. The book value of operating assets is $1,000,000. The market value of non-operating assets is $900,000. The market value of the firms debt is $1,500,000 and the market value of the preferred stock is $500,000.

What is the value of the firms operations?

What will be the market value of the firms common equity?