ou are looking at the valuation of a stable firm. Networks Limited, done by an investment…

ou are looking at the valuation of a stable firm. Networks Limited, done by an investment analyst. Based on an expected free cash flow of Rs.54 million for the following year and an expected growth rate of 9 per cent, the analyst has estimated the value of the firm to be Rs.1800 million. However, he committed a mistake of using the book values of debt and equity. You do not know the book value weights employed by him but you know that the firm has a cost of equity of 20 per cent and a post-tax cost of debt of 10 per cent. The market value of equity is thrice its book value, whereas the market value of its debt is nine-tenths of its book value. What is the correct value of the firm?