1. Tech Geek is interested in establishing a valuation estimate and how this estimate was arrived at for their firm. Tech Geek is a constant growth perpetuity with CFFA0 for last year equal to $250M. The growth rate in their CFFA has been constant at 4% annually for several years now and is expected to remain so into the future. Tech Geek is financed with 50% debt and 50% equity. Their outstanding debt, originally issued in $1,000 increments, is trading at $800 with 10 years remaining, on average. The debt was originally issued at a coupon rate of 10% annually. Tech Geek equity is also publicly traded. Currently, the standard deviation of the returns on the market portfolio is 12% ( M= .12). The covariance between the returns on Tech Geek equity and the returns of the market portfolio is 2.16% (M, Geek Tech= .0216). Finally, the current Rf=2% and E(RM)=5%.

Tech Geek has hired us to explain the valuation process for their firm and provide a current estimate of the overall value of Tech Geek.