Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 18, Problem 14P
Amarindo, Inc. (AMR), is a newly public firm with 10 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its
AMR has a much lower debt-equity ratio of 0.30, which is expected to remain stable, and its debt is risk free. AMR’s corporate tax rate is 40%, the risk-free rate is 5%, and the expected return on the market portfolio is 11%.
- a. Estimate AMR’s equity cost of capital.
- b. Estimate AMR’s share price.
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Use the following information to answer the question(s) below.
Nielson Motors (NM) is a newly public firm with 25 million shares outstanding. You are doing a valuation analysis of Nielson and you estimate its free cash flow i the coming year to be $40 million. You expect the firm's free cash flows to grow
by 4% per year in subsequent years. Because the firm has only been listed on the stock exchange for a short time, you do not have an accurate assessment of Nielson's equity beta. However, you do have the following data for another firm in
the same industry:
Equity Beta
Debt Beta
0.4
Debt-Equity Ratio
1.5
1.8
Nielson has a much lower debt - equity ratio of .5, which is expected remain stable, and Nielson's debt is risk free. Nielson's corporate tax rate is 40%, the risk - free rate is 5%, and the expected return on the market portfolio is 10%.
Nielson's estimated equity beta is closest to:
O A. 0.95
OB. 1.25
O C. 1.00
OD. 1.45
Amarindo, Inc. (AMR), is a newly public firm with 9.0 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to $14.58 million, and you expect the firm's free cash flows to grow by 3.9% per year in subsequent years. Because the firm
has only been listed on the stock exchange for a short time, you do not have an accurate assessment of AMR's equity beta. However, you do have beta data for UAL, another firm in the same industry: AMR has a much lower debt-equity ratio of 0.45, which is expected to remain stable, and its
debt is risk free. AMR's corporate tax rate is 20%, the risk-free rate is 5.2%, and the expected return on the market portfolio is 10.8%.
a. Estimate AMR's equity cost of capital.
b. Estimate AMR's share price.
a. Estimate AMR's equity cost of capital.
The equity cost of capital is%. (Round to two decimal places.)
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)…
Use the following information to answer the question(s) below.
Nielson Motors (NM) is a newly public firm with 25 million shares outstanding. You are doing a valuation analysis of Nielson and you estimate its free cash flow in the coming year to be $40 million. You expect the firm's free cash flows to grow
by 4% per year in subsequent years. Because the firm has only been listed on the stock exchange for a short time, you do not have an accurate assessment of Nielson's equity beta. However, you do have the following data for another firm in
the same industry:
Equity Beta
Debt Beta
0.4
Debt - Equity Ratio
1.5
1.8
Nielson has a much lower debt - equity ratio of .5, which is expected to remain stable, and Nielson's debt is risk free. Nielson's corporate tax rate is 40%, the risk - free rate is 5%, and the expected return on the market portfolio is 10%.
Nielson's estimated equity beta is closest to:
O A. 0.95
OB. 1.25
O C. 1.00
OD. 1.45
Chapter 18 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 18.1 - What are the three methods we can use to include...Ch. 18.1 - Prob. 2CCCh. 18.2 - Prob. 1CCCh. 18.2 - Prob. 2CCCh. 18.3 - Prob. 1CCCh. 18.3 - Prob. 2CCCh. 18.4 - Prob. 1CCCh. 18.4 - Prob. 2CCCh. 18.5 - How do we estimate a projects unlevered cost of...Ch. 18.5 - What is the incremental debt associated with a...
Ch. 18.6 - Prob. 1CCCh. 18.6 - Prob. 2CCCh. 18.7 - How do we deal with issuance costs and security...Ch. 18.7 - Prob. 2CCCh. 18.8 - When a firm has pre-determined tax shields, how do...Ch. 18.8 - Prob. 2CCCh. 18 - Prob. 1PCh. 18 - Prob. 2PCh. 18 - In 2015, Intel Corporation had a market...Ch. 18 - Prob. 4PCh. 18 - Suppose Goodyear Tire and Rubber Company is...Ch. 18 - Suppose Alcatel-Lucent has an equity cost of...Ch. 18 - Acort Industries has 10 million shares outstanding...Ch. 18 - Prob. 8PCh. 18 - Prob. 9PCh. 18 - Consider Alcatel-Lucents project in Problem 6. a....Ch. 18 - Consider Alcatel-Lucents project in Problem 6. a....Ch. 18 - In year 1, AMC will earn 2000 before interest and...Ch. 18 - Prokter and Gramble (PKGR) has historically...Ch. 18 - Amarindo, Inc. (AMR), is a newly public firm with...Ch. 18 - Remex (RMX) currently has no debt in its capital...Ch. 18 - You are evaluating a project that requires an...Ch. 18 - Prob. 17PCh. 18 - You are on your way to an important budget...Ch. 18 - Your firm is considering building a 600 million...Ch. 18 - Prob. 20PCh. 18 - DFS Corporation is currently an all-equity firm,...Ch. 18 - Prob. 22PCh. 18 - Prob. 23PCh. 18 - Prob. 24PCh. 18 - XL Sports is expected to generate free cash flows...Ch. 18 - Propel Corporation plans to make a 50 million...Ch. 18 - Gartner Systems has no debt and an equity cost of...Ch. 18 - Revtek, Inc., has an equity cost of capital of 12%...
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY