What is the value of the paper division

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Elk Falls plc is wholly financed by equity and has no debt. It has three divisions. The pulp division has capital of £8m and is expected to produce returns of 11% during its initial five-year planning horizon. After the five-year planning horizon, it will produce returns of 14%, which is equal to the required rate of return for the risk level of the division. The paper division has £12m of equity investment and is expected to produce returns of 22% during its planning horizon, which is 10 years. Following the ten-year planning horizon, the paper division will produce the division's required rate of return of 15%. The timber division has £2m of capital. It has a planning horizon of seven years, and during the planning horizon, the timber division is expected to produce returns of 17%. After the seven-year planning horizon, it will produce the division's required rate of return of 16%.

a) What is the value of the paper division?

b) What is the value of Elk Falls plc?

Reference no: EM132601522

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