As connoisseurs of elegant fast food cuisine, we are interested in making a bid for the Greens-to-Go restaurant division of SlurpCo, Inc. SlurpCo has three primary divisions, soft drinks, Major League football franchises, and the G to G restaurants. Given the unique risk profiles for each of these divisions, it is imperative we estimate G to G's divisional beta to determine its fit into our company. Consider the following information: Company Name Debt Ratio Levered Equity Beta Marginal Tax Rate Revenues ($ Mill) Parent Company 60% 0.95 40% Greens to Go 65% ?? 40% Burger Doodle 35% 0.75 35% 1.95 Southern Fried Taco 45% 1.25 30% 2.85 Buffet Pizza Company 40% 1.05 27% 0.75 Calculate the unlevered asset betas for each of the three comparable firms being sure to adjust appropriately for their respective marginal tax rates Calculate the arithmetic industry average of the three asset betas Calculate the weighted average asset beta using the revenues to determine the weights Estimate a levered equity beta for the Greens-to-Go division using the both the arithmetic and the weighted averages.
As connoisseurs of elegant fast food cuisine, we are interested in making a bid for the Greens-to-Go restaurant division of SlurpCo, Inc. SlurpCo has three primary divisions, soft drinks, Major League football franchises, and the G to G restaurants. Given the unique risk profiles for each of these divisions, it is imperative we estimate G to G's divisional beta to determine its fit into our company. Consider the following information: Company Name Debt Ratio Levered Equity Beta Marginal Tax Rate Revenues ($ Mill) Parent Company 60% 0.95 40% Greens to Go 65% ?? 40% Burger Doodle 35% 0.75 35% 1.95 Southern Fried Taco 45% 1.25 30% 2.85 Buffet Pizza Company 40% 1.05 27% 0.75 Calculate the unlevered asset betas for each of the three comparable firms being sure to adjust appropriately for their respective marginal tax rates Calculate the arithmetic industry average of the three asset betas Calculate the weighted average asset beta using the revenues to determine the weights Estimate a levered equity beta for the Greens-to-Go division using the both the arithmetic and the weighted averages.
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
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- As connoisseurs of elegant fast food cuisine, we are interested in making a bid for the Greens-to-Go restaurant division of SlurpCo, Inc. SlurpCo has three primary divisions, soft drinks, Major League football franchises, and the G to G restaurants. Given the unique risk profiles for each of these divisions, it is imperative we estimate G to G's divisional beta to determine its fit into our company. Consider the following information:
|
Company Name |
Debt Ratio |
Levered Equity Beta |
Marginal Tax Rate |
Revenues ($ Mill) |
|
Parent Company |
60% |
0.95 |
40% |
|
|
Greens to Go |
65% |
?? |
40% |
|
|
|
|
|
|
|
|
Burger Doodle |
35% |
0.75 |
35% |
1.95 |
|
Southern Fried Taco |
45% |
1.25 |
30% |
2.85 |
|
Buffet Pizza Company |
40% |
1.05 |
27% |
0.75 |
- Calculate the unlevered asset betas for each of the three comparable firms being sure to adjust appropriately for their respective marginal tax rates
- Calculate the arithmetic industry average of the three asset betas
- Calculate the weighted average asset beta using the revenues to determine the weights
- Estimate a levered equity beta for the Greens-to-Go division using the both the arithmetic and the weighted averages.
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