(3) You would like to create a secondary ticket market focused primarily on selling tick- ets for sporting events (60%) and you anticipate that 20% of your business will be in tickets for broadway shows and 20% will be in tickets for concerts. You have the following information about last year's revenues from some of your competitors: Revenue Revenue Revenue From E Broadway From Sports From Concerts $200 M D+E Bequity Ticketmaster $300 M 0.60 1.8 0.80 1.7 Livenation Stubhub $80 M $100 M $50 M 0.50 1.5 $300 M Recall that the beta of a business with two product lines, A and B, the beta of the business is given by BA and B = BAWA + BBWB (a): What is the beta of a pure play business that sells concert tickets? (b): What is the beta of a pure play business that sells tickets to sporting events? (c): What is the beta of a pure play business that sells tickets to Broadway shows? (d): If the risk-free rate is 2% and the expected return on the market is 10%, bo tho cost of canital for the company you are planning to start?
(3) You would like to create a secondary ticket market focused primarily on selling tick- ets for sporting events (60%) and you anticipate that 20% of your business will be in tickets for broadway shows and 20% will be in tickets for concerts. You have the following information about last year's revenues from some of your competitors: Revenue Revenue Revenue From E Broadway From Sports From Concerts $200 M D+E Bequity Ticketmaster $300 M 0.60 1.8 0.80 1.7 Livenation Stubhub $80 M $100 M $50 M 0.50 1.5 $300 M Recall that the beta of a business with two product lines, A and B, the beta of the business is given by BA and B = BAWA + BBWB (a): What is the beta of a pure play business that sells concert tickets? (b): What is the beta of a pure play business that sells tickets to sporting events? (c): What is the beta of a pure play business that sells tickets to Broadway shows? (d): If the risk-free rate is 2% and the expected return on the market is 10%, bo tho cost of canital for the company you are planning to start?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
I was wondering how to solve questions number three and number four. Please please, can anyone help me and know how to do questions #3 (including #a, b, c, d, e) and questions #4 (including #a and b)??
-Thank you-
OR I was wondering how to solve c and d on question number two. It would be appreciated if I have a chance to know and understand how to solve those.
-Thank you-
Transcribed Image Text:(3) You would like to create a secondary ticket market focused primarily on selling tick-
ets for sporting events (60%) and you anticipate that 20% of your business will be
in tickets for broadway shows and 20% will be in tickets for concerts. You have the
following information about last year's revenues from some of your competitors:
Revenue
Revenue
Revenue From
E
Broadway
From Sports From Concerts
$200 M
D+E Pequity
1.8
0.60
Ticketmaster
$300 M
Livenation
$80 M
$100 M
0.80
1.7
Stubhub
$300 M
$50 M
0.50
1.5
Recall that the beta of a business with two product lines, A and B, the beta of the
business is given by
BAWA + BBWB
(a): What is the beta of a pure play business that sells concert tickets?
BA and B =
(b): What is the beta of a pure play business that sells tickets to sporting events?
(c): What is the beta of a pure play business that sells tickets to Broadway shows?
(d): If the risk-free rate is 2% and the expected return on the market is 10%,
what will be the cost of capital for the company you are planning to start?
(e): If
turn on equity and on debt?
you
finance the firm 50% through equity, what is the required rate of re-
(4) Acme Storage has a market capitalization of $100 million. Acme's current debt-to-
equity ratio is 0.4 and management intends to maintain this ratio. The required
rate of return on the firm's debt is 7.4%. The corporate tax rate is 35%.
(a): If Acme's free cash flow is expected to be $7 million next year and is ex-
pected to grow at a rate of 3% per year, what is Acme's WACC? (hint: use the
growing perpetuity formula)
(b): What is the value of Acme's interest tax shield? (hint: compare the values
of the firm under the WACC and pretax-WACC scenarios)
Transcribed Image Text:(2) Consider the scenario of question 1 and suppose that you decide to start the cup-
cake business described above. However, you do not want to risk all of your money.
Instead, you decide to take out $3 million dollar loan from the bank that matures in
year. You
the other $4 million out of your savings. (you've been a good saver!)
рay
(a): As in question 1, calculate the holding period return on your $4 million in-
vestment for each state of the world.
(b): Calculate the equity B using the following:
Colaite
Cov(ri, Tm)
Var(rm)
%3D
Tetu
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