Western Lumber Company expects to generate net earnings ( NE ) of $ 4.25 MM and this NE is expected to grow at a constant rate of 4% per year thereafter. The company has an equity cost of 10% and a debt cost of 6%. Corporate tax rate for Western Lumber is 35%. Western Lumber always maintains a debt to equity ratio of 0.40.

The PV of this infinite NE for Western Lumber is:

a. $ 80 MM

b. $ 85 MM

c. $ 90 MM

d. $ 95 MM

e. $ 100 MM

19. The Government is contemplating the reduction of Western Lumbers tax rate from 35% to 30%. If this reduction materializes, then the PV of this infinite stream of NE would be reduced by:

    a. ( 1.5 ) %

    b. ( 2.0 ) %

    c. ( 2.5 ) %

    d. ( 2.7 ) %

    e. ( 3.0 ) %