The risk-free rate is 2 and the implied equity premium is 6


The risk-free rate is 2% and the implied equity premium is 6 %. Your firm's overall bottom-up unlevered beta is 1.2. When examining the latest valuations for a potential investment in a new factory, however, you notice that the analyst used the overall beta to value an investment in your entertainment division. The entertainment division has un unlevered beta of 1.8. The investment costs$50M in year 0 and returns cash flows of $10M a year for year 1-10. In year 11, you plan to sell the investment for $13M. If the project is funded entirely with equity, by how much (in dollars terms) did the analyst overstate the value of the project? 

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Finance Basics: The risk-free rate is 2 and the implied equity premium is 6
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