1. Two companies, Alpha, Inc. and Beta, Inc., are in the same business. Alfa, Inc., has debt that the market considers risk-free with a market value of $500 million. Beta, Inc., has no debt. Both companies are expected to generate cash flows of $100 million per year for the foreseeable future and the market value of the equity of Beta, Inc is $1 billion. 
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3. Estimate the percentage return on equity for Alpha, Inc. Assume there are no taxes and the risk-free rate is 5.00%.

Answer rating: 100% (QA)

To estimate the percentage return on equity for Alpha Inc we can use the concept of the cost of equity The cost of equity is the return that equity in... View the full answer