5. As part of its efforts at diversification, the Sherbert theater organization, producer of Broadway plays, is considering acquiring a movie theater chain. A prime acquisition candi- date is Consolidated Cinemas, currently owned by a conglomerate, Tryon. Although Tryon has given Sherbert what it feels is an accurate forecast of expected cash flows from the cin- ema chain, Sherbert would like to have its own estimate of the required rate of return to apply to these cash flows. The chief financial officer has acquired the following information on independently owned movie house chains: D/TA* Movie House NCO Theater, Inc. Worldwide/Global Screen Rocks Ultimate Theater *D/TA = debt/total assets Beta 1.70 0.50 2.50 -0.10 0.40 0.10 0.50 0.75 a. Using a risk-free rate of 7.5% and a market risk premium of 8.5%, what is your esti- mate of the cost of equity capital for Consolidated? b. What qualifications would you include with your estimate? 5. As part of its efforts at diversification, the Sherbert theater organization, producer of Broadway plays, is considering acquiring a movie theater chain. A prime acquisition candi- date is Consolidated Cinemas, currently owned by a conglomerate, Tryon. Although Tryon has given Sherbert what it feels is an accurate forecast of expected cash flows from the cin- ema chain, Sherbert would like to have its own estimate of the required rate of return to apply to these cash flows. The chief financial officer has acquired the following information on independently owned movie house chains: D/TA* Movie House NCO Theater, Inc. Worldwide/Global Screen Rocks Ultimate Theater *D/TA = debt/total assets Beta 1.70 0.50 2.50 -0.10 0.40 0.10 0.50 0.75 a. Using a risk-free rate of 7.5% and a market risk premium of 8.5%, what is your esti- mate of the cost of equity capital for Consolidated? b. What qualifications would you include with your estimate