Решить задачи

1. Suppose the risk-free return is 4% and the market portfolio has an expected return of 10% and a volatility of 16%. ANB Corp stock has a 20% volatility and a correlation with the market of 0.06.
a) What is ANB’s beta with respect to the market?
b) Under the CAPM assumptions, what is its expected return?
2. Suppose that your new venture will have 2,000,000 shares of common stock outstanding after IPO with a market price of $2 per share. Also suppose that your new venture will have 2,000 bonds outstanding, each will sell for $1,200. The bonds will mature in 15 years, will have a coupon rate of 10%, and will pay coupons annually. The new venture beta is expected to be 1.2, the risk free rate is expected to be 5%, and the market risk premium is expected to be 7%. The tax rate of your new venture is expected to be 34%. Calculate the WACC.
3. Weston Enterprises is an all-equity firm with two divisions. The soft drink division has an asset beta of 0.60, expects to generate free cash flow of $50 million this year, and anticipates a 3% perpetual growth rate. The industrial chemicals division has an asset beta of 1.20, expects to generate free cash flow of $70 million this year, and anticipates a 2% perpetual growth rate. Suppose the risk-free rate is 4% and the market risk premium is 5%.
a. Estimate the value of each division.
b. Estimate Weston’s current equity beta and cost of capital. Is this cost of capital useful for
valuing Weston’s projects? How is Weston’s equity beta likely to change over time?
4. Sinopec is a Chinese company that acquires a license for oil extraction in Russian Siberia. The cost of acquisition is $ 27 million.
Sinopec has debt-to-equity ratio of 1.5. Annual cash flow is estimated at $5 millions annually for the 8-years period. The liquidation of the equipment would derive $ 3 million. The interest rate is 12%, tax rate is 25%. The risk-free rate is 6%, unleveraged beta equals to 0,9; market premium is 7%.
a. Estimate the discount rate for an investment project
b. Calculate the NPV of an investment project
c. What investment decision should be made?
5. The Tristar Company (the Company) has $285 million of risk free debt outstanding at the same time its common stock is worth $665 million. Its firm’s equity beta is estimated to be 1.25. The Company cost of debt is 6%, the same as the risk free rate. The return on the market is 14%.
A) What is Tristar’s weighted average cost of capital (WACC)? Assume there are no taxes.
B) Now suppose that the Company pays corporate taxes at a 35% rate. Assume that the before tax cost of debt is still 6%, and that the cost of equity is now 14.95%. What is the Company’s WACC?
C) The Company has an investment project that will expand the size of its existing business. The project costs $275,000 and will generate an after tax cash flow of $34,905 per year forever. The Company intends on keeping its debt ratio constant. What is the NPV of this project?
D) Now suppose the Company is evaluating two independent investment projects. Project A is a new process to manufacture a wireless phone. Suppose project A requires an investment of $1000 and produces $600 per year for two years. Project B involves an innovative optical carrying approach to wireless communications. This project also requires an investment of $1000 but is estimated to generate $620 per year for two years. The risk free rate is still 6% and the market risk premium is 8.5%.
Calculate the NPVs of these two projects and make your recommendation on whether they should be accepted or rejected based on the following project and firm information:
Project Beta
A 0.8
B 1.2
Firm 1.0
6. Harrison Holdings, Inc. (HHI) is publicly traded, with a current share price of $32 per share. HHI has 20 million shares outstanding, as well as $64 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 $850 million, and an enterprise value of $1.05 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 risk premium 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 1.33.
Given this information, estimate the beta of HHI’s investment in the hockey team.