Estimate the return on equity of alpha

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Reference no: EM132033888

Two firms, Alpha, Inc., and Beta, Inc., are in the same business. Alpha, Inc., has debt that is viewed by the market as risk-less with a market value of $550 million. Beta, Inc., has no debt.

Both firms 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 $1.1 billion.

Estimate the return on equity of Alpha, Inc. Assume there are no taxes, and the risk-free rate is 6%. (Enter the answer with no more nor less than two decimal places, and leave off the % sign. For example, if your answer is 13.97% you should enter it as 13.97 NOT 0.14 nor 14)

Reference no: EM132033888

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