# Question: Amarindo Inc AMR is a newly public firm with 10

Amarindo, Inc. (AMR), is a newly public firm with 10 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to be $15 million, and 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 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 0.30, 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 shareprice.

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 shareprice.

**View Solution:**## Answer to relevant Questions

Remex (RMX) currently has no debt in its capital structure. The beta of its equity is 1.50. For each year into the indefinite future, Remex’s free cash flow is expected to equal $25 million. Remex is considering changing ...DFS Corporation is currently an all-equity firm, with assets with a market value of $100 million and 4 million shares outstanding. DFS is considering a leveraged recapitalization to boost its share price. The firm plans to ...Revtek, Inc., has an equity cost of capital of 12% and a debt cost of capital of 6%. Revtek maintains a constant debt-equity ratio of 0.5, and its tax rate is 35%.a. What is Revtek’s WACC given its current debt-equity ...Forecast Ideko’s free cash flow (reproduce Table 19.10), assuming Ideko’s market share will increase by 0.5% per year; investment, financing, and depreciation will be adjusted accordingly; and the projected improvements ...Explain the meanings of the following financial terms:a. Optionb. Expiration datec. Strike priced. Calle. PutPost your question