The following private company would like you to estimate its beta for them. Since it is privately held there are no market prices that you can use to obtain regression betas. Here is some additional information about the company. 20% of revenues from industry X 80% of revenues from industry Y Average regression beta of firms in industry X is 0.50 Average regression beta of firms in industry Y is 1.40 Average debt ratio (D/TA) of firms in industry X is 10% Average debt ratio (D/TA) of firms in industry Y is 55% Company debt ratio is 25% Tax rate is 25% EV/Sales for industry X is 4.0 EV/Sales for industry Y is 2.5 a) Please estimate the company's beta. b) Please estimate the company's new beta if its debt ratio is expected to increase to 80%.
The following private company would like you to estimate its beta for them. Since it is privately held there are no market prices that you can use to obtain regression betas. Here is some additional information about the company. 20% of revenues from industry X 80% of revenues from industry Y Average regression beta of firms in industry X is 0.50 Average regression beta of firms in industry Y is 1.40 Average debt ratio (D/TA) of firms in industry X is 10% Average debt ratio (D/TA) of firms in industry Y is 55% Company debt ratio is 25% Tax rate is 25% EV/Sales for industry X is 4.0 EV/Sales for industry Y is 2.5 a) Please estimate the company's beta. b) Please estimate the company's new beta if its debt ratio is expected to increase to 80%.
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
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Transcribed Image Text:The following private company would like you to estimate its beta for them.
Since it is privately held there are no market prices that you can use to obtain
regression betas.
Here is some additional information about the company.
20% of revenues from industry X
80% of revenues from industry Y
Average regression beta of firms in industry X is 0.50
Average regression beta of firms in industry Y is 1.40
Average debt ratio (D/TA) of firms in industry X is 10%
Average debt ratio (D/TA) of firms in industry Y is 55%
Company debt ratio is 25%
Tax rate is 25%
EV/Sales for industry X is 4.0
EV/Sales for industry Y is 2.5
a) Please estimate the company's beta.
b) Please estimate the company's new beta if its debt ratio is expected to increase
to 80%.
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