Amarindo, Inc. (AMR), is a newly public firm with 10.0 million shares outstanding. You are doing...

Amarindo, Inc. (AMR), is a newly public firm with 10.0 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to be $14.86 million, and you expect the firm's free cash flows to grow by 4.4% 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 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 0.24, which is expected to remain stable, and its debt is risk free. AMR's corporate tax rate is 32%,

the risk-free rate is 5.3%, and the expected return on the market portfolio is 11.1%.

Equity Beta Debt Beta Debt and Equity Ratio

UAL 1.20 .24 .8

a. Estimate AMR's equity cost of capital.

b. Estimate AMR's share price.

a. Estimate AMR's equity cost of capital.

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

Amarindo, Inc. (AMR), is a newly public firm with 10.5 million shares outstanding. You are doing...

Amarindo, Inc. (AMR), is a newly public firm with 10.5 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to be $14.84 million, and you expect the firm's free cash flows to grow by 4.1% 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...

18.5 Amarindo, Inc is a newly public firm with 8.0 million shares outstanding. You are doing...

18.5 Amarindo, Inc is a newly public firm with 8.0 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to be 15.05 million, and you expect the firms free cash flows only to grow by 4.4% 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 AMR's equity beta. However,...

RMA is a public firm with 11.5 million shares outstanding. You are doing a valuation analysis...

RMA is a public firm with 11.5 million shares outstanding. You are doing a valuation analysis of RMA. You estimate its free cash flow in the coming year to be $15.46 million, and you expect the firm's free cash flows to grow by 7.1% 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 RMA's equity beta. However, you do have beta...

Jackson Software, Inc. is an all-equity firm with 2 million shares outstanding, $6 million in earnings...

Jackson Software, Inc. is an all-equity firm with 2 million shares outstanding, $6 million in earnings after taxes, and a market value of $100 million. The firm borrows $25 million at an interest rate of 8% and buys back 500,000 shares with the proceeds. The firm's tax rate is 40%. Management does not want the earnings performance to disappoint shareholders and market analysts. What is the maximum interest rate the firm could pay on its new debt so as not...

SNC Inc., an unlevered firm, has 1 million shares outstanding, each trading at $25. The firm...

SNC Inc., an unlevered firm, has 1 million shares outstanding, each trading at $25. The firm is thinking of changing its capital structure by issuing $10 million of debt at 10% and will use the proceeds to repurchase shares. Assume the bank pays an interest rate of 10%. Assume that SNC Inc. decides to convert to the proposed capital structure. Jane, a shareholder of the firm, owns 15,000 shares. She prefers the cash flows she was receiving under the all-equity...

XYZ Satellites Inc. is an all equity firm with 200,000 shares outstanding and $20 million in...

XYZ Satellites Inc. is an all equity firm with 200,000 shares outstanding and $20 million in earnings after taxes with a market value of $350 million.The company borrows $75 million to repurchase#50000 shares @8%.The tax rate is 50%. 1) What effect will this have on the earning per share of the firm? 2) At what interest rate would have to be on the debt for the EPS effect to disappear?

ABC Inc. has 10 million shares of common stock outstanding. The firm also has 1,200,000 shares...

ABC Inc. has 10 million shares of common stock outstanding. The firm also has 1,200,000 shares of 6 percent preferred stock (annual dividend=$6) and 300,000 semi-annual bonds of $1,000 face value with a coupon rate of 8 percent semiannual bonds outstanding. The bonds were issued five years ago with maturity of 30 years when they were issued. The market price of common stock is $46 per share and has a beta of 0.85, the preferred stock currently sells for $90...

26) ABC Inc. has 10 million shares of common stock outstanding. The firm also has1,200,000 shares...

26) ABC Inc. has 10 million shares of common stock outstanding. The firm also has1,200,000 shares of 6 percent preferred stock (annual dividend=$6) and 300,000 semi-annual bonds of $1,000 face value with a coupon rate of 8 percent semiannual bonds outstanding. The bonds were issued five years ago with maturity of 30 years when they were issued. The market price of common stock is $46 per share and has a beta of 0.85, the preferred stock currently sells for $90...

?Zelnor, Inc., is an? all-equity firm with 180 million shares outstanding currently trading for $ 11.52...

?Zelnor, Inc., is an? all-equity firm with 180 million shares outstanding currently trading for $ 11.52 per share. Suppose Zelnor decides to grant a total of 18 million new shares to employees as part of a new compensation plan. The firm argues that this new compensation plan will motivate employees and is better than giving salary bonuses because it will not cost the firm anything. Assume perfect capital markets. a. If the new compensation plan has no effect on the...

The shares outstanding of RING Inc. are 321 million. At the end of the year, the...

The shares outstanding of RING Inc. are 321 million. At the end of the year, the company expects its earnings to be $641 million. The equity cost of capital of the company is 11%. The firm pays out 50% of its earnings in total: 20% used to repurchase shares and 30% paid out as dividends. If earnings are expected to grow at a constant rate of 7% per year, what is the share price of RING Inc? Select one: $12.48...

Subjects

Question

Amarindo, Inc.​ (AMR), is a newly public firm with 10.0 million shares outstanding. You are doing...

Solutions

Expert Solution

Related Solutions

Amarindo, Inc. (AMR), is a newly public firm with 10.0 million shares outstanding. You are doing...