Amarindo, Inc.? (AMR), is a newly public firm with 11.5 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to be ?$15.46 ?million, and you expect the? firm's free cash flows to grow by 4.3?% per year in subsequent years. Because the firm has only been listed on the stock exchange for a short? time, you do not have an accurate assessment of? AMR's equity beta.? However, you do have beta data for? UAL, another firm in the same? industry:
Equity Beta Debt Beta Debt-Equity Ratio
UAL 1.65 0.33 1.1
AMR has a much lower? debt-equity ratio of 0.33?, which is expected to remain? stable, and its debt is risk free.? AMR's corporate tax rate is 32?%, the? risk-free rate is 5.2?%, and the expected return on the market portfolio is 11.5%.
a. Estimate? AMR's equity cost of capital.
b. Estimate? AMR's share price.