Effect of Beta on Valuation

This problem practices the link between systematic risk, the cost of capital, and discounted cash flow valuation. Candidates need to understand that beta is a measure of how sensitive a company is to market movements, how that sensitivity affects the discount rate investors require, and how a higher required return changes the present value of future cash flows. Interviewers ask this because they want to see whether you can connect risk assumptions to valuation mechanics and explain why companies with different risk profiles should not be valued the same way.