You are asked to evaluate Rising Star Co. using the free cash flow valuation approach. You have collected the following information:

Rising Star has net income of $250 million, depreciation of $90 million, capital expenditures of $170 million, and an increase in working capital of $40 million. Rising Star will finance 40% of the increase in net fixed assets (capital expenditures less depreciation) and 40% of the increase in working capital with debt financing. Interest expenses are $150 million. The current market value of Rising Stars outstanding debt is $1,800 million. Free cash flow to the firm (FCFF) is expected to grow at 6.0% indefinitely, and free cash flow to equity (FCFE) is expected to grow at 7.0%. The tax rate is 30%. Rising Star is financed with 40% debt and 60% equity. The before-tax cost of debt is 9%, and the cost of equity is 13%. Rising Star has 10 million outstanding shares. The current price of the stock is $310.

Required:

a. Using the FCFF valuation approach, estimate the total value of the firm, the total market value of equity, and the per - share value of equity (10 marks).

b. Using the FCFE valuation approach, estimate the total market value of equity and the per share value of equity (10 marks).

c. Comment on the valuation. Would you recommend buying this stock (5 marks)?