You are an entrepreneur who would like to start a new firm that specializes in electric cars. Your plan is to fund this new business by selling 40 percent of the equity ownership in this firm. In order to correctly price this equity, you will need to calculate the value of your business. This will involve determining the proper discount rate for electric car cash flows. Fortunately, there is one publicly traded electric car company (symbol: BOLT) you can use for comparison You run a regression of BOLT excess stock returns on excess market returns and obtain an equity beta of 2.5 for BOLT. Additional research informs you that the market capitalization (i.e. market value of equity) of BOLT is $600M, the value of BOLT debt is $400M (which was issued at par and will remain a $400M irn perpetuity), and the beta of BOLT debt is zero. a) What is the beta of assets for BOLT? Your business partner informs you that the beta of assets you calculated in (a) is not quite the beta we should be using to calculate the expected return on our electric car cash flows. The reason is that BOLT is a levered firm, and therefore the beta of assets for BOLT incorporates both its electric car cash flows and tax shield cash flows. We do not have tax shield cash flows because our firm has no debt. b) Assume that the operating assets (OA) of BOLT equals the total assets (A) of BOLT minus the value of their tax shield (TS). Also assume a tax rate of 40 percent, and that the beta of the BOLT tax shield equals zero. What is the beta of operating assets for BOLT? You will need to use the following equation: Vo OA TS , OA TS TS TS c) Because your firm is all-equity, the proper discount rate to apply to your electric car cash flows is the expected return on operating assets for BOLT. Assume a risk-free rate of 3 percent and a market risk premium of 5 percent. Starting next year, your firm will produce an annual perpetual free cash flow of $30M with 25% probability, $50M with 50% probability, or $70M with 25% probability. What is the value of your firm? How much money would you get if you sold 40% ownership in your firm