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5. You are looking at different stock investments to make, and Alpha Inc, is doing an IPO later today (in other words, they are not

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5. You are looking at different stock investments to make, and Alpha Inc, is doing an IPO later today (in other words, they are not currently publicly-traded but will be starting tomorrow). They do nol paya dividend at the moment, but you expeet them to start paying a $2 dividend (per share) exactly 1 years from today, and you believe that this dividend will grow by 4% into perpetuity. You believe that Gamma Co. is a very similar company to Alpha Inc. in terms of the investments that each firm Alpha Inc.'s capital structure is 35% debt, and this level is expected to persist into the future. Gamma has an equity beta of 1.25. Gamma also has a market cap of $12 billion, along AAA-rated debt. Assume no tax. If with $5 Billion What is the asset beta if Alpha Inc.? (Hint: Asset beta of Alpha is the same as asset beta of Gamma) a. b. What is equity beta of Alpha Inc.? c. What is the cost of equity for Alpha Inc. if risk-free rate is 4% and market risk premium is 5%? d. What should be the price of a share of Alpha Inc

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