Amarindo, Inc. (AMR), is a newly public firm with 11.0

million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to be

$14.81 million, and you expect the firm's free cash flows to grow by 4.5%

per year in subsequent years. Because the firm has 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:

Equity Beta Debt Beta Debt-Equity Beta

UAL 1.35 0.27 0.9

.

AMR has a much lower debt-equity ratio of 0.27,

which is expected to remain stable, and its debt is risk free. AMR's corporate tax rate is

30%, the risk-free rate is 5.3%, and the expected return on the market portfolio is 10.9 %.

a. Estimate AMR's equity cost of capital.

b. Estimate AMR's share price.