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You wish to value Nooksack Tough Stuff, (NTS), a construction materials company, but you do not know the appropriate discount rate for its cash flows.

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You wish to value Nooksack Tough Stuff, (NTS), a construction materials company, but you do not know the appropriate discount rate for its cash flows. Martin Marietta (MLM) is the most comparable firm. MLM has 62 million shares outstanding at current market price $174 per share and debt worth $3.7 billion. Suppose that MLM will keep its debt level at $3.7 billion permanently, regardless of firm performance. MLM has required return on equity of 8.3% and required return on debt of 4,6%. The corporate tax rate is 21%, and the risk-free rate is 3.9%. NTS has expected EBIT of $23 million for the next year (assume exactly one year from now), and its expected EBIT will grow at 1.5% per year for the following 8 years. After that, there will be no more cash flows. (That is, NTS will generate 9 cash flows in all.) Suppose NTS has $30 million of debt and will keep that dollar amount of debt fixed, regardless of firm performance, until paying all of its debt 6 years from now. Assume there are no changes in net working capital, no depreciation, and no other impacts on free cash flow. What is the value of NTS (the entire firm, not just equity)

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