Under the same assumptions as in Section 22.3, suppose your corporation owns an operating electric car dealership,

Question:

Under the same assumptions as in Section 22.3, suppose your corporation owns an operating electric car dealership, together with one-year options to open five more.

a. What is the value and beta of your firm if the expected first-year free cash flow for all dealerships is $580,000?

b. What is the value and beta of your firm if the expected first-year free cash flow for all dealerships is $350,000?

c. In which case do your options have higher beta? In which case does your firm have higher beta? Why?

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