marindo, Inc. (AMR), is a newly public firm with 10.0 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to be $14.88 million, and you expect the firm's free cash flows to grow by 4.3 % 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 1.35, debt beta is 0.27 and debt-equity ratio is 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 25 %, the risk-free rate is 4.6 %, and the expected return on the market portfolio is 11.1 %.

a. Estimate AMR's equity cost of capital.