Question
In: Finance
You have been asked to estimate the beta of a high-technology firm which has three divisions...
You have been asked to estimate the beta of a high-technology firm which has three divisions with the following characteristics
| Division | Beta | Market Value |
| Personal Computers | 1.60 | $100 million |
| Software | 2.00 | $150 million |
| Computer Mainframes | 1.20 | $250 million |
What is the beta of the equity of the firm?
Solutions
Expert Solution
Market Value of Personal Computers = $100 million
Market Value of Software = $150 million
Market Value of Computer Mainframes = $250 million
Market Value of Firm = Market Value of Personal Computers +
Market Value of Software + Market Value of Computer
Mainframes
Market Value of Firm = $100 million + $150 million + $250
million
Market Value of Firm = $500 million
Weight of Personal Computers = Market Value of Personal
Computers / Market Value of Firm
Weight of Personal Computers = $100 million / $500 million
Weight of Personal Computers = 20%
Weight of Software = Market Value of Software / Market Value of
Firm
Weight of Software = $150 million / $500 million
Weight of Software = 30%
Weight of Computer Mainframes = Market Value of Computer
Mainframes / Market Value of Firm
Weight of Computer Mainframes = $250 million / $500 million
Weight of Computer Mainframes = 50%
Beta of Firm = Beta of Personal Computers * Weight of Personal
Computers + Beta of Software * Weight of Software + Beta of
Computer Mainframes * Weight of Computer Mainframes
Beta of Firm = 1.60 * 20% + 2.00 * 30% + 1.20 * 50%
Beta of Firm = 1.52
jeff jeffy answered 1 year agoRelated Solutions
6. You have been asked to estimate the beta of a high-technology firm, which has three...
6. You have been asked to estimate the beta of a high-technology
firm, which has three divisions with the following
characteristics.
Division Beta Market Value
Personal Computers 1.6 $100 million
Software 2.00 $150 million
Computer Mainframes 1.2 $250 million
a. What is the beta of the equity of the firm?
b. If the risk free return is 5% and the spread between the
return on all stocks is 5.5%, estimate the cost of equity for the
software division?
c. What...
You have been asked to estimate the value of a home for sale. The subject property...
You have been asked to estimate the value of a home for sale.
The subject property has three bedrooms, one bathroom, and is in
good condition. A highly comparable property just sold near the
subject recently. You will use this recent sale as the comp to
estimate value of of the subject property. The comp sold for
$134,000. It has three bedrooms, two bathrooms, and is in good
condition. Assume bedrooms are worth $5,000 and bathrooms are worth
$3,000. What...
You have been asked to estimate the value of a home for sale. The subject property...
You have been asked to estimate the value of a home for sale.
The subject property has three bedrooms, two bathrooms, and is in
good condition. A highly comparable property just sold near the
subject recently.
The comp sold for $127,900. It has three bedrooms, one bathroom,
and is in good condition.
Assume bedrooms are worth $4,500 and bathrooms are worth
$2,700.
What is the indicated value of the subject
based on the comparable sale? (please show all work below...
You have been asked to estimate the appropriate discount rate to use in the evaluation of...
You have been asked to estimate the appropriate discount rate to
use in the evaluation of a new line of business. You have
determined the market value of the firm’s target capital structure
as follows:
Source of Capital
Market Value
Bonds
350,000
Preferred Stock
200,000
Common Stock
450,000
To finance the new project, the company will sell:
12-year bonds with a $1,000 par value paying 8% per year (paid
semiannually) at the market price of $980.
Preferred stock paying a...
You have been asked to estimate the appropriate discount rate to use in the evaluation of...
You have been asked to estimate the appropriate discount rate to
use in the evaluation of a new line of business. You have
determined the market value of the firm’s target capital structure
as follows:
Source of Capital
Market Value
Bonds
350,000
Preferred Stock
200,000
Common Stock
450,000
To finance the new project, the company will sell:
12-year bonds with a $1,000 par value paying 8% per year (paid
semiannually) at the market price of $980.
Preferred stock paying a...
You have been asked to provide an estimate for the net operating income (NOI) of the...
You have been asked to provide an estimate for the net operating
income (NOI) of the Shared Office Space Building. The building
consists of 16 suites evenly distributed in 4 floors (4 suites per
floor). Today, the offices in the first-floor lease for $2,100 per
month, while the rest of the offices lease for $1,600 per month.
The market study reveals that the average vacancy in the market is
8% per year; the expected operating expenses are 41% of the...
You work for a large retailer and have been asked to estimate the proportion of your...
You work for a large retailer and have been asked to estimate
the proportion of your customers that are less than 30 years old.
You have sampled a large number of stores and have found that of
the 106 customers you have surveyed, 58 are less than 30 years
old.
Assuming your sample is valid, what is the upper bound of a 99%
confidence interval for the population proportion of customers who
are less than 30 years old?
(Report your...
You have been asked to estimate the enterprise value of Dan Automotive as of today in...
You have been asked to estimate the enterprise value of Dan
Automotive as of today in an effort to determine what price the
firm might sell for if it were offered for sale on the open market.
You have identified a public company, Kal Motors, which has
business operations that are identical to those at Dan Auto. The
income statements for Dan Auto and Kal Motors for their fiscal
years that ended this December 31, 2017 are as follows:
Financials...
You are working for an investment firm in the City of London and have been asked...
You are working for an investment firm in the City of London and
have been asked to perform some analysis of the European-style call
options of a company called Elevation Matters Plc (EM).
The most recent closing share price for EM was £38. The
risk-free rate is 3%. The time to expiry for the options is one
year. The volatility (standard deviation) of EM’s shares is 25% and
the company has decided not to pay any dividends this year.
On...
You have been asked to value the shares of L Corp. You estimate that L's Net...
You have been asked to value the shares of L Corp. You estimate
that L's Net Income will be $1 billion in the next 12 months (year
1). You further forecast that L's Net Income will increase by $100
million each year in years 2 to 4. Starting from year 5, you
forecast that L's Net Income will grow by 4% per year forever. That
is, Net Income in year 5 will be 4% higher than Net Income in year...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Assume that attributes with the same name in different relations represent the same domain and that...
- JAVA: Use existing Java Stack class to solve the "Balancing Symbols" problem. The symbols are (),...
- K-NN and Perceptron theory question If we don’t care about the size of the TRAINING SET...
- Make a C program that simulates time-sharing in the operating system. Please follow the instructions provided:...
- What are some current challenges faced by food companies in reducing food waste?
- Arthur buys $2,200.00 worth of stock. Six months later, the value of the stock has risen...
- The Following table is based on a time study for a metal working operation Obs (minutes...
ADVERTISEMENT