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By how much will you misvalue the firm

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Question: You are considering acquiring a firm that you believe can generate expected cash flows of $8,000 a year forever. However, you recognize that those cash flows are uncertain.

Suppose you believe that the beta of the firm is 0.5. How much is the firm worth if the risk-free rate is 5% and the expected market risk premium is 8%? (Round your answer to the nearest cent.)

The Value of the Firm:

By how much will you misvalue the firm if its beta is actually 0.7? (Round your answer to the nearest cent. Enter your answer as positive value.)

By underestimating beta, you would (undervalue) or (overvalue) the firm by $

Reference no: EM132757203

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