Sinaloa Appliance, Incorporated, a private firm that manufactures home appliances, has hired you to estimate the companys beta. You have obtained the following equity betas for publicly traded firms that also manufacture home appliances. Firm Beta ($ millions) Debt Market Value of Equity iRobot 0.85 $ 0 $ 2,790 Middleby's 1.80 735 7,330 National Presto 0.05 0 750 Newell Brands 1.00 11,898 25,870 Whirlpool 1.70 4,475 13,630

You are valuing a project for Gila Corporation using the APV method. You already found the net present value of free cash flows from the project (discounted at the appropriate cost of equity) to be $400,000. The only important side effect of financing is the present value of interest tax shields. The project will be partially financed by a constant $1 million in debt over the life of the project, which is three years. Gilas tax rate is 30 percent, and the current interest rate applicable for the projects debt is 5 percent (assume this rate is also appropriate for discounting the interest tax shields). Assuming tax shields are realized at the end of each year, what is the APV of the project?

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 companys equity beta is 1.20 and its debt-to-firm value ratio, measured using market values, is 60 percent. The investors plan to improve the targets 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)
	1	2	3	4	5
Free cash flows	$ 36	$ 51	$ 56	$ 61	$ 61
Selling price					$ 732
Total free cash flows	$ 36	$ 51	$ 56	$ 61	$ 793

To finance the purchase, the investors have negotiated a $510 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