FINANCE-Vandell’s free cash flow (FCF0) is $2 million per year

QUESTION

Vandell’s free cash flow (FCF0) is $2 million per year and is expected to grow at a constantrate of 5% a year; its beta is 1.4. What is the value of Vandell’s operations? If Vandell has$10.82 million in debt, what is the current value of Vandell’s stock? (Hint: Use thecorporate valuation model from Chapter 7.)

ANSWER:

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