Question: Question 2 [30 points) The Perpetual Motion Machine. is assessing its current capital structure and its implications for the welfare of its security holders. Perpetual

Question 2 [30 points) The Perpetual Motion Machine. is assessing its

Question 2 [30 points) The Perpetual Motion Machine. is assessing its current capital structure and its implications for the welfare of its security holders. Perpetual is currently financed entirely with common stock, of which 100,000 shares are outstanding. Given the risk of the underlying free cash flows generated by Perpetual Motion, investors currently require a 23% return on the Perpetual's common. Perpetual Motions's expected free cash flows are $2.4 million next year expected to grow at 3% per year in perpetuity and it faces a corporate tax rate of 35%. The market risk-premium is 6% and the risk-free rate is 5%. (a) What is the value of Perpetual Motion, its equity value, the beta of its equity? (6 points]

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