held firm, you do not have access to the necessary data. If you want to estimate a beta for DUC, will have to work with some comparable firm data. Calculate the unlevered betas for each of you the four basic comparable firms shown below. (Hint: Be sure to adjust for the respective tax rates given.) Comparable Firms Sales Levered Total Тах ($ Mill) Beta Debt Ratio Rate
held firm, you do not have access to the necessary data. If you want to estimate a beta for DUC, will have to work with some comparable firm data. Calculate the unlevered betas for each of you the four basic comparable firms shown below. (Hint: Be sure to adjust for the respective tax rates given.) Comparable Firms Sales Levered Total Тах ($ Mill) Beta Debt Ratio Rate
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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Question
What is the unlevered beta for each of the four comparable firms? Additionally, estimate an equally-weighted and sales-weighted average unlevered beta.
Transcribed Image Text:a) You are interested in estimating a beta for Digital Universe Company. Since they are a privately held firm, you do not have access to the necessary data. If you want to estimate a beta for DUC, you will have to work with some comparable firm data. Calculate the unlevered betas for each of the four basic comparable firms shown below. (*Hint*: Be sure to adjust for the respective tax rates given.)
| Comparable Firms | Sales ($ Mill) | Levered Beta | Total Debt Ratio | Tax Rate |
|-----------------------|----------------|--------------|------------------|----------|
| Judy in the Sky, Inc. | 54.86 | 1.45 | 22.0% | 25% |
| Yellow Submarine, Ltd.| 312.29 | 1.33 | 27.0% | 35% |
| Eleanor Rigby, Co. | 18.90 | 1.12 | 32.0% | 30% |
| Hold My Hand, LLC | 75.35 | 1.23 | 45.0% | 28% |
Total Sales: 461.40
Expert Solution
Step 1
Beta shows market risk and unlevered beta eliminates effect of debt and shows risk only with presence of equity component in capital structure.
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