Question

What is the present value of a cash flow stream of $1,000 per year annually for 15 years that then grows at 2.0 percent per year forever when the discount rate is 8 percent? (Round intermediate calculations and final answer to 2 decimal places.)

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  1.  What is the present value of a cash flow stream of $1,000 per year annually for 15 years that then grows at 2.0 percent per year forever when the discount rate is 8 percent? (Round intermediate calculations and final answer to 2 decimal places.)

  2. A security analyst has regressed the monthly returns on Exxon Mobil equity shares over the past five years against those on the Standard & Poor’s 500 stock index over the same period. The resulting regression equation is rEM = 0.02 + 0.74rSP. Use this equation and any other information you deem appropriate to estimate Exxon Mobil’s equity beta. (Round your answer to 2 decimal places.)

  3. Estimate the target firm’s asset beta. (Round your answer to 2 decimal places.)

  4. Estimate the target’s unlevered, or all-equity, cost of capital (KA). (Round your answer to 1 decimal place.)

  5. Estimate the target’s all-equity present value. (Enter your answer in millions rounded to 2 decimal places.)

  6. Estimate the present value of the interest tax shields on the acquisition debt discounted at KA(Round intermediate calculations to 1 decimal place. Enter your answer in millions rounded to 2 decimal places.)

  7. Estimate an asset beta for Sinaloa Appliance. (Round intermediate calculations and final answer to 3 decimal places.)

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