Answered>Order 4868

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 $15.19 million, and you expect the? firm’s free cash flows to grow by 3.8?% 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.

Chart/Info Given: UAL ….. Equity Beta: 1.20  Debt Beta: 0.24  Debt-Equity Ratio: 0.8

AMR has a much lower? debt-equity ratio of 0.24?, which is expected to remain? stable, and its debt is risk free.? AMR’s corporate tax rate is 25?%, the ?risk-free rate is 5.3?%, and the expected return on the market portfolio is 10.9%.

a. Estimate? AMR’s equity cost of capital.

b. Estimate? AMR’s share price.