Amarindo, Inc. (AMR), is a newly public firm with 9.0 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to $14.58 million, and you expect the firm's free cash flows to grow by 3.9% per year in subsequent years. Because the firmhas only been listed on the stock exchange for a short time, you do not have an accurate assessment of AMR's equity beta. However, you do have beta data for UAL, another firm in the same industry: AMR has a much lower debt-equity ratio of 0.45, which is expected to remain stable, and itsdebt is risk free. AMR's corporate tax rate is 20%, the risk-free rate is 5.2%, and the expected return on the market portfolio is 10.8%.a. Estimate AMR's equity cost of capital.b. Estimate AMR's share price.a. Estimate AMR's equity cost of capital.The equity cost of capital is%. (Round to two decimal places.)Data table(Click on the following icon in order to copy its contents into a spreadsheet.)Equity Beta2.25UALPrintDebt Beta0.45DoneDebt-Equity Ratio1.5X

a. The unlevered beta is The equity beta for AMR is

Answered: Amarindo, Inc. (AMR), is a newly public…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 25P

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