How much will misvalue the firm if beta is actually one

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You are considering acquiring a firm that you believe can generate expected cash flows of $9,000 a year forever. However, you recognize that those cash flows are uncertain.

Problem 1: Suppose you believe that the beta of the firm is 0.7. How much is the firm worth if the risk-free rate is 5% and the expected market risk premium is 9%? (Round your answer to the nearest cent.)

Problem 2: By how much will you misvalue the firm if its beta is actually 1? (Round your answer to the nearest cent. Enter your answer as positive value.)

Problem 3: By underestimating beta, you would ( Overvalue/ Undervalue ) the firm by

Reference no: EM132943531

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