Union Corp. reported free cash flow to firm (FCFF) of $770 million in a recent financial year. The firm also had $4 billion in debt outstanding on the books, which was rated BBB (carrying default spread of 3% above the Treasury bond rate of 3%). The beta of the stock is 1.2, and there were 200 million shares outstanding (trading at $60 per share), with a book value of $5 billion. Equity risk premium is 5.5%. Tax rate is 36% The firm has new technology, which gave the firm competitive advantage to obtain a higher growth rate of 7%. However, the advantage is likely to disappear in 5 years and the firm will operate like a mature firm, which has a growth rate of about 3%.

(1) What is terminal value? And what is the present value of terminal value? (2) What is firm value? (3) Is the stock price currently undervalued or overvalued