Chapter 13, Problem 13PS

FinCorp’s free cash flow to the firm is reported as $\$\text{2}0\text{5}$ million. The firm’s interest expense is $\$\text{22}$ million. Assume the corporate tax rate is $\text{21}\%$ and the net debt of the firm increases by $\$\text{3}$ million. What is the market value of equity if the FCFE is projected to grow at $\text{3}\%$ indefinitely and the cost of equity is $\text{12}\%$ ? $\left(\text{LO 13}-\text{4}\right)$