Previous Page Next Page Page 17 of 20 Question 17 (6 points) You are considering acquiring a firm that you believe can generate expected cash flows of $40,000 a year forever. However, you recognize that those cash flows are uncertain. a. With a beta of.5, how much is the firm worth if the risk-free rate is 3% and the expected market risk premium is 6%? (2 marks) b. If it turns out that the beta is actually .7: i. Did you overvalue or undervalue the firm? (2 marks) ii. By how much did you overvalue/undervalue the firm? (2 marks) 1 Page 17 of 20 Previous Page Next Page