Question

FIRM FOR QUESTIONS: GRUBHUB

1. Estimate beta using a simple average of the following two approaches
   1. Identify the firm’s published beta (Yahoo finance)
   2. Calculate the firm’s beta using regression
2. Identify Rf (30 years T-Bonds)
3. Research the consensus market risk premium
4. Calculate the Return on Equity
   1. CAPM approach
   2. Dividend growth approach
5. Calculate the Return on Debt
   1. Identify all outstanding debt issues and calculate the yield on those outstanding debts
   2. Research the firm’s credit rating and identify the yield on similar new issues
   3. What’s the firm’s average income tax rate
6. Calculate the Return on Preferred debt
7. Calculate the WACC

Answer 1

1) answer is option 'b'

We can Esimate beta using regression

2) Answer is option 'b'

We can caluculate Return on Equity using Dividend growth Approach.

By Cost of Equity can be caluculated by CAPM(Capital Asset Pricing Model).

3) Answer is option 'a'

Return on Debt is simply the Annual net Income divided by average long term debt(begining of the year debt plus ending of the year debt divided by two).

4) Answer is option 'b'

The average tax rate equals total taxes divided by total taxable income. Caluculating the average tax rate involves adding all of the taxes paid under each bracket and dividing it by total income.