Consider again the electric car dealership in Section 22.3. Suppose the current value of a dealership is $5.2 million and the first-year free cash flow is expected to be $520,000 rather than $600,000. What is the beta of a corporation whose only asset is a one-year option to open a dealership? What is the beta if the first year’s cash flows are expected to be $710,000, so a working dealership is worth $7.1 million?

Consider again the electric car dealership in Section 22.3. Suppose the current value of a dealership is $5.2 million and the first-year free cash flow is expected to be $520,000 rather than $600,000. What is the beta of a corporation whose only asset is a one-year option to open a dealership? What is the beta if the first year’s cash flows are expected to be $710,000, so a working dealership is worth $7.1 million?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 8P

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