In June 2009, Cisco Systems had a market capitalization of $113 billion. It had A-rated debt of $14 billion as well as cash and short-term investments of $34 billion, and its estimated equity beta at the time was 1.28.a. What is Cisco's enterprise value?b. Assuming Cisco's debt has a beta of zero, estimate the beta of Cisco's underlying business enterprise.a. What is Cisco's enterprise value?Cisco's enterprise value is $billion. (Round to the nearest integer.)b. Assuming Cisco's debt has a beta of zero, estimate the beta of Cisco's underlying business enterprise.The beta of Cisco's underlying business enterprise is. (Round to two decimal places.)

Market capitalization = $113 billionA-rated debt = $14 billionCash & Short term investments =…

Answered: In June 2009, Cisco Systems had a…

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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Labrador technologies Inc. plans to become public soon. The board of directors would like to know the value of common equity and have asked for your opinion. The firm has $1,249,917 in preferred equity and the market value of its outstanding debt equals $2,049,396. The WACC for this firm is estimated to be 8.92%. For this example assume the current assets are zero. Use the DCF valuation model with the expected FCFs shown below; year 1 represents one year from today and so on. The company expects to grow at a 3.0% rate after Year 5. Rounding to the nearest penny, what is the value of common equity? Free Cash Period Flow Year 1 $1,370,274 Year 2 $1,761,479 Year 3 $1,909,652 Year 4 $2,361,090 Year 5 $2,744,645
Ginger Industries stock has a beta of 1.33. The company just paid a dividend of $.83, and the dividends are expected to grow at 5.3 percent. The expected return on the market is 11.8 percent, and Treasury bills are yielding 5.3 percent. The most recent stock price is $83.00. Calculate the cost of equity using the dividend growth model method. Calculate the cost of equity using the SML method.
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