Suppose music producer Mackleless is considering signing the up and coming artist AriannePetite. The record sales of Mackleless have a market beta of 1, while Arianne Petites record sales have a market beta of 2. The risk-free rate is currently 5%, while the expected market return is 10%.

a. What is the relevant discount factor for Arianne Petites record sales?

Suppose Arianne Petite requires a sign-up bonus of $60 million, and the cash flows from her record sales are expected to be $10 million for the next 10 years.

b. Is signing Arianne Petite a good idea for Mackleless?

c. Does your answer change if Mackleless beta is used for calculation of the discount

factor?