You estimate that the free cash flows of a firm will be $5million, $8million, $12million and

$14million over the next four years.

You estimate that the cash flows will grow at 5% thereafer.

You have calculated the cost of equity capital = 15.5% and the pre-tax cost of debt capital = 7%. The average tax rate is 20%, and the marginal tax rate is 40%.

The firm is currently operating with a D/E

ratioo of 1.5, and the target D/E ratio is 0.80.

Calculate the value of the firm.

A)

$191.54 million

B)

$209.52 million

C)

$275.56 million