Question

In: Finance

Sinaloa Appliance, Inc., a private firm that manufactures homeappliances, has hired you to estimate the...

Sinaloa Appliance, Inc., a private firm that manufactures home appliances, has hired you to estimate the company’s beta. You have obtained the following equity betas for publicly traded firms that also manufacture home appliances.

	($ millions)
Firm	Beta	Debt	Market Value of Equity
iRobot	0.87	$0	$	2890
Middleby's	1.82	741		7,370
National Presto	0.07	0		772
Newell Brands	1.02	11,908		26,070
Whirlpool	1.72	4,485		13,770

a. Estimate an asset beta for Sinaloa Appliance.

Expert Solution

BETA(unlevered firm) or Asset beta = (Equity / ((Equity) + (1 - tax rate)*(DEBT))) * BETA(levered firm)

Beta of unlevered firm means asset beta

beta of levered firm means equity beta

Asset beta of iRobot = (2890 / ((2890) + (1 - 0%)*(0))) * 0.87

=0.87

Asset beta of Middleby's = (7370/ ((7370) + (1 - 0%)*(741))) *1.82

=1.653729503

Asset beta of National presto = (772/ ((772) + (1 - 0%)*(0))) *0.07

=0.07

Asset beta of Newell Brands = (26070/ ((26070) + (1 - 0%)*(11908))) *1.02

=0.700179051

Asset beta of Whirlpool = (13770/ ((13770) + (1 - 0%)*(4485))) *1.72

=1.297419885

Asset beta of Firm Sinaloa Appliances = Average of Asset beta of all companies = Sum of all beta/number of companies

=(0.87+1.653729503+0.07+0.700179051+1.297419885)/5

=0.9182656878

So asset beta of firm is 0.9183

jeff jeffy answered 2 years ago

Sinaloa Appliance, Inc., a private firm that manufactures home appliances, has hired you to estimate the...

Sinaloa Appliance, Inc., a private firm that manufactures home appliances, has hired you to estimate the company’s beta. You have obtained the following equity betas for publicly traded firms that also manufacture home appliances. ($ millions) Firm Beta Debt Market Value of Equity iRobot 0.93 $0 $ 3,190 Middleby's 1.88 759 7,490 National Presto 0.13 0 838 Newell Brands 1.08 11,938 26,670 Whirlpool 1.78 4,515 14,190 a. Estimate an asset beta for Sinaloa Appliance.

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