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 0.71 0.94 1.07 Portfolio's beta Expected Cash Flow Year 1 $7.7 million 2 million 9.9 million Expected Cash Flow Growth Rate Years 2 to 5 year 6 and on 2% 88 2% a. If the risk-free rate is 3% and the expected market risk premium is 7%, 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 (BS) today $ E 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.) $ million $ 2% 6% 3% million million
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 0.71 0.94 1.07 Portfolio's beta Expected Cash Flow Year 1 $7.7 million 2 million 9.9 million Expected Cash Flow Growth Rate Years 2 to 5 year 6 and on 2% 88 2% a. If the risk-free rate is 3% and the expected market risk premium is 7%, 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 (BS) today $ E 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.) $ million $ 2% 6% 3% million million
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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Kk103.
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
0.71
0.94
1.07
Portfolio's beta
Expected Cash
Flow
Year 1
$7.7 million
2 million.
9.9 million
Expected Cash Flow Growth Rate
Years 2 to 5 year 6 and on
2%
8%
28
a. If the risk-free rate is 3% and the expected market risk premium is 7%, 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 (BS) today
$
$
$
million
million
2%
6%
38
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.)
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