"A company has a current market capitalization of $2 billion . It considers an investment with an initial outlay of $200 million that increases the annual cash flows by 30 million for the indefinite future (so one needs to pay taxes for the new profits). It faces a tax rate of 25%, has 25% debt in its capital structure which will not vary with the new project. The firm debt is risk free at 7%. Current analysis shows that the business risk associated to the sector that it operates is 10%.

Using the DDM model, what is the value of dividends that it promises to pay in the indefinite future before undertaking the project? (Make reasonable assumptions to answer this question) "

Can business risk associated to the sector that it operates.. be translated to the risk premium?