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How much is firm worth if risk-free rate is three percent

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You are considering acquiring a firm that you believe can generate expected cash flows of $10,000 a year forever. However, you recognize that those cash flows are uncertain.

Problem 1: Suppose you believe that the beta of the firm is 0.5. How much is the firm worth if the risk-free rate is 3% and the expected market risk premium is 8%? (Round your answer to the nearest cent.)

Problem 2: By how much will you misvalue the firm if its beta is actually 0.6? (Round your answer to the nearest cent. Enter your answer as positive value.)

Reference no: EM132943284

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