Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Question
Chapter 12, Problem 24P
Summary Introduction
To determine: The beta of H Company’s investment in the hockey team.
Introduction:
Beta is an important indicator of the risk of a security. It measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
Investment refers to the act of purchasing financial assets with the expectation of a rise in the value of the asset.
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Harrison Holdings, Inc. (HHI) is publicly traded, with a current share price of $34 per share. HHI has 20 million shares outstanding, as well as $68 million in debt. The founder of HHI, Harry Harrison, made his fortune in the fast food business. He sold off part of his fast food empire, and purchased a professional hockey team. HHI's only assets are
the hockey team, together with 50% of the outstanding shares of Harry's Hotdogs restaurant chain. Harry's Hotdogs (HDG) has a market capitalization of $872 million, and an enterprise value of $1.04 billion. After a little research, you find that the average asset beta of other fast food restaurant chains is 0.76. You also find that the debt of HHIl and
HDG is highly rated, and so you decide to estimate the beta of both firms' debt as zero. Finally, you do a regression analysis on HHI's historical stock returns in comparison to the S&P 500, and estimate an equity beta of 1.32. Given this information, estimate the beta of HHI's investment in…
Harrison Holdings, Inc. (HHI) is publicly traded, with a current share price of $37 per share. HHI has 21 million shares outstanding, as well as $62 million in debt. The founder of HHI, Harry Harrison, made his fortune in
the fast food business. He sold off part of his fast food empire, and purchased a professional hockey team. HHI's only assets are the hockey team, together with 50% of the outstanding shares of Harry's Hotdogs
restaurant chain. Harry's Hotdogs (HDG) has a market capitalization of $846 million, and an enterprise value of $1.01 billion. After a little research, you find that the average asset beta of other fast food restaurant
chains is 0.75. You also find that the debt of HHI and HDG is highly rated, and so you decide to estimate the beta of both firms' debt as zero. Finally, you do a regression analysis on HHI's historical stock returns in
comparison to the S&P 500, and estimate an equity beta of 1.34. Given this information, estimate the beta of HHI's investment in…
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Chapter 12 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 12.1 - According to the CAPM, we can determine the cost...Ch. 12.1 - What inputs do we need to estimate a firms equity...Ch. 12.2 - How do you determine the weight of a stock in the...Ch. 12.2 - Prob. 2CCCh. 12.2 - Prob. 3CCCh. 12.3 - How can you estimate a stocks beta from historical...Ch. 12.3 - How do we define a stocks alpha, and what is its...Ch. 12.4 - Why does the yield to maturity of a firms debt...Ch. 12.4 - Prob. 2CCCh. 12.5 - What data can we use to estimate the beta of a...
Ch. 12.5 - Prob. 2CCCh. 12.6 - Why might projects within the same firm have...Ch. 12.6 - Under what conditions can we evaluate a project...Ch. 12.7 - Prob. 1CCCh. 12.7 - Prob. 2CCCh. 12 - Prob. 1PCh. 12 - Suppose the market portfolio has an expected...Ch. 12 - Prob. 3PCh. 12 - Suppose all possible investment opportunities in...Ch. 12 - Using the data in Problem 4, suppose you are...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Suppose that in place of the SP 500, you wanted to...Ch. 12 - Prob. 9PCh. 12 - You need to estimate the equity cost or capital...Ch. 12 - In mid-2012, Ralston Purina had AA-rated, 10-year...Ch. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Your firm is planning to invest in an automated...Ch. 12 - Consider the setting of Problem 18. You decided to...Ch. 12 - Prob. 20PCh. 12 - In mid-2015, Cisco Systems had a market...Ch. 12 - Weston Enterprises is an all-equity firm with two...Ch. 12 - Prob. 24PCh. 12 - Your company operates a steel plant. On average,...Ch. 12 - Prob. 26PCh. 12 - You would like to estimate the weighted average...
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