Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Can you show me how to get the answers for a and b? They are both correct answers. I just want to know the steps.
Can you show me how to get the answers for a and b? They are both correct answers. I just want to know the steps. Thanks!
Amarindo, Inc. (AMR), is a newly public firm with 8.0 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to be $15.49 million, and you expect the firm's free cash flows to grow by 3.6% 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: . AMR has a much lower debt-equity ratio of 0.33, which is expected to remain stable, and its debt is risk free. AMR's corporate tax rate is 32%, the risk-free rate is 5.1%, 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. a. Estimate AMR's equity cost of capital. The equity cost of capital is 12.50 %. (Round to two decimal places.) b. Estimate AMR's share price. The share price is $ 21.86. (Round to the nearest cent.) Amarindo, Inc. (AMR), is a newly public firm with 8.0 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to be $15.49 million, and you expect the firm's free cash flows to grow by 3.6% 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: . AMR has a much lower debt-equity ratio of 0.33, which is expected to remain stable, and its debt is risk free. AMR's corporate tax rate is 32%, the risk-free rate is 5.1%, 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. a. Estimate AMR's equity cost of capital. The equity cost of capital is 12.50 %. (Round to two decimal places.) b. Estimate AMR's share price. The share price is $ 21.86. (Round to the nearest cent.)Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started