Food Express is a well-established grocery chain. Computer Power is an up-and-coming computer software developer for business. Bridge Steel is an integrated steel producer, focusing on steel for buildings and bridges. Some information about the companies was provided by an investment banking company as follows: Firm Food Express Computer Power Bridge Steel Beta 0.84 0.94 1.07 Portfolio's beta Expected Cash Flow Year 1 $7.9 million 1.9 million 10.8 million Expected Cash Flow Growth Rate Years 2 to 5 year 6 and on 3.8% 3.8% 1.5% a. If the risk-free rate is 3% and the expected market risk premium is 6%, what is each firm worth? (Enter your answers in millions. For example, an answer of $13,000,000 should be entered as 13. Round your answers to 2 decimal places. Do not round intermediate calculations.) Value of Food Express (FE) today Value of Computer Power (CP) today Value of Bridge Steel (5) today million million 3.6% 3.5% million b. If you owned all three companies, what would be the beta of your stock portfolio based on market-value weights? (Round your answer to 2 decimal places)
Food Express is a well-established grocery chain. Computer Power is an up-and-coming computer software developer for business. Bridge Steel is an integrated steel producer, focusing on steel for buildings and bridges. Some information about the companies was provided by an investment banking company as follows: Firm Food Express Computer Power Bridge Steel Beta 0.84 0.94 1.07 Portfolio's beta Expected Cash Flow Year 1 $7.9 million 1.9 million 10.8 million Expected Cash Flow Growth Rate Years 2 to 5 year 6 and on 3.8% 3.8% 1.5% a. If the risk-free rate is 3% and the expected market risk premium is 6%, what is each firm worth? (Enter your answers in millions. For example, an answer of $13,000,000 should be entered as 13. Round your answers to 2 decimal places. Do not round intermediate calculations.) Value of Food Express (FE) today Value of Computer Power (CP) today Value of Bridge Steel (5) today million million 3.6% 3.5% million b. If you owned all three companies, what would be the beta of your stock portfolio based on market-value weights? (Round your answer to 2 decimal places)
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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Transcribed Image Text:Food Express is a well-established grocery chain. Computer Power is an up-and-coming computer software developer for business.
Bridge Steel is an integrated steel producer, focusing on steel for buildings and bridges. Some information about the companies was
provided by an investment banking company as follows:
Firm
Food Express
Computer Power
Bridge Steel
Beta
0.84
0.94
1.07
Expected Cash Flow
Year 1
$7.9 million
1.9 million
10.8 million
$
a. If the risk-free rate is 3% and the expected market risk premium is 6%, what is each firm worth? (Enter your answers in millions. For
example, an answer of $13,000,000 should be entered as 13. Round your answers to 2 decimal places. Do not round intermediate
calculations.)
Value of Food Express (FE) today
Value of Computer Power (CP) today
Value of Bridge Steel (85) today
$
Expected Cash Flow Growth Rate
Years 2 to 5 year 6 and on
3.8%
7.6%
1.5%
S
million
million
3.8%
3.6%
3.5%
million
b. If you owned all three companies, what would be the beta of your stock portfolio based on market value weights? (Round your
answer to 2 decimal places.)
Portfolio's beta
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