You are considering acquiring a firm that you believe can generate expected free cash flows of $9,000 a year forever. However, you recognize that those cash flows are uncertain.

a. Suppose you believe that the beta of the firm is 0.7. How much is the firm worth if the risk-free rate is 5% and the expected market risk premium is 9%? (Do not round the discount rate in your calculation. Round your answer to the nearest cent.)

The value of the firm $

b. By how much will you misvalue the firm if its beta is actually 1? (Do not round the discount rate in your calculation. Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as positive value.)

By underestimating beta, you would (Click to select) undervalue overvalue the firm by $