A group of investors is intent on purchasing a publicly traded company and wants to estimate the highest price they can reasonably justify paying. The target company$$s equity beta is $1\mathrm{.}20$ and its debt$-$to$-$firm value ratio, measured using market values, is $60$ percent. The investors plan to improve the target$$s cash flows and sell it for $12$ times free cash flow in year five. Projected free cash flows and selling price are as follows.

Year $($$ millions$)$

$12345$

Free cash flows $ $28$ $ $43$ $ $48$ $ $53$ $ $53$

Selling price $ $636$

Total free cash flows $ $28$ $ $43$ $ $48$ $ $53$ $ $689$

To finance the purchase, the investors have negotiated a $$430$ million, five$-$year loan at $8$ percent interest to be repaid in five equal payments at the end of each year, plus interest on the declining balance. This will be the only interest$-$bearing debt outstanding after the acquisition.

Selected Additional Information

Tax rate $40$ percent

Risk$-$free interest rate $3$ percent

Market risk premium $5$ percent

Estimate the target firm$$s asset beta.