Question
In mid-2009, Systemico Inc had a market capitalization of $120 billion. It had BBB-rated debt of...
In mid-2009, Systemico Inc had a market capitalization of $120 billion. It had BBB-rated debt of 35 billion, and its estimated equity beta at the time was 1.25.
Estimate Systemico's riskiness of the underlying business enterprise.
Homework Answers
Answer #1
Equity beta is also knowm as the Levered beta. It refers to the Beta of the firm which has debt or Financial leverages.
On the other hand Asset beta is the beta of the firm, by assuming that the firm has no Debt. it measures the riskness of the Firm without considering the debt.
Hence we have to calculate the asset beta of Systemico In to know the riskness of the underlying business.
=>
Systemico's riskiness of the underlying business enterprise is its asset beta that is 0.97.
--------------------------------------------------------------------------------------------------------------------------------------
Not the answer you're looking for?
Similar Questions
In? mid-2015, Qualcomm Inc. had ?$11 billion in? debt, total equity capitalization of ?$90 ?billion, and...
In? mid-2015, Qualcomm Inc. had ?$11 billion in? debt, total
equity capitalization of ?$90 ?billion, and an equity beta of 1.44
?(as reported on? Yahoo! Finance). Included in? Qualcomm's assets
was ?$22 billion in cash and? risk-free securities. Assume that
the? risk-free rate of interest is 2.9 % and the market risk
premium is 3.9 % . a. What is? Qualcomm's enterprise? value? b.
What is the beta of? Qualcomm's business? assets? c. What is?
Qualcomm's WACC?
a. What is?...
As of November 2019, Qualcomm Inc. had $28 billion in debt, 1.21 billion shares outstanding at...
As of November 2019, Qualcomm Inc. had $28 billion in
debt, 1.21 billion shares outstanding at a price of $83.55 per
share, and an equity beta of 1.38 (as reported on Yahoo! Finance).
Included in Qualcomm's assets was $11.8 billion in cash and
risk-free securities. Assume that the risk-free rate of interest
is 0.9% and the market risk premium is
3.9%.
What is Qualcomm's enterprise
value?
What is the beta of Qualcomm's business
assets?
What is Qualcomm's WACC?
In mid-2009, Rite Aid had CCC-rated, 12-year bonds outstanding with a yield to maturity of 17.3...
In mid-2009, Rite Aid had CCC-rated, 12-year bonds
outstanding with a yield to maturity of 17.3 %. At the time,
similar maturity Treasuries had a yield of 3 %. Suppose the market
risk premium is 6 % and you believe Rite Aid's bonds have a beta
of 0.37. The expected loss rate of these bonds in the event of
default is 50 %.
a. What annual probability of default would be consistent with
the yield to maturity of these bonds...
As of November 2019, Qualcomm Inc. had $28 billion in debt, 1.21 billion shares outstanding at...
As of November 2019, Qualcomm Inc. had $28 billion in debt,
1.21 billion shares outstanding at a price of $83.55 per share, and
an equity beta of 1.38 (as reported on Yahoo! Finance). Included
in Qualcomm's assets was $11.8 billion in cash and risk-free
securities. Assume that the risk-free rate of interest is 0.9% and
the market risk premium is 3.9%.
What is Qualcomm's enterprise value?
What is the beta of Qualcomm's business
assets?
What is Qualcomm's pre-tax WACC?
Novell, which had a market value of equity of $3.5 billion and a beta of 2,announced...
Novell, which had a market value of equity of $3.5 billion and a
beta of 2,announced that it was acquiring WordPerfect, which had a
market value of equity of $1.5 billion and a beta of 2.30. Neither
firm had any debt in its financial structure at the time of the
acquisition, and the corporate tax rate was 35%.
a. Estimate the beta for Novell after the acquisition, assuming
that the entire acquisition was financed with equity.
b. Assume that Novell...
6) Suppose Alcatel-Lucent has an equity cost of capital of 10%, market capitalization of $10.80 billion,...
6) Suppose Alcatel-Lucent has an equity cost of capital of
10%, market capitalization of $10.80 billion, and an enterprise
value of $14.4 billion. Suppose Alcatel-Lucent's debt cost of
capital is 6.1% and its marginal tax rate is 35%.
a. What is Alcatel-Lucent's WACC?
b. If Alcatel-Lucent maintains a constant debt-equity ratio,
what is the value of a project with average risk and the expected
free cash flows as shown here,
Year 0, 1, 2, 3
FCF ($ million) -100, 50,...
In mid-2009, Ralston Purina had AA-rated, six-year bonds outstanding with a yield to maturity of 3.98...
In mid-2009, Ralston Purina had AA-rated, six-year bonds
outstanding with a yield to maturity of
3.98 %3.98%.
At the time, similar maturity Treasuries had a yield of
2 %2%.
a. If Ralston Purina’s bonds were risk-free,
what is your estimate of the expected return for
these bonds?
b. If you believe Ralston Purina's bonds
have
0.7 %0.7%
chance of default per year and that expected loss rate in the
event of default is
32 %32%,
what is your estimate of...
Suppose Alcatel-Lucent has an equity cost of capital of 10.7 %,market capitalization of$ 10.50 billion, and...
Suppose Alcatel-Lucent has an equity cost of capital of 10.7
%,market capitalization of$ 10.50 billion, and an enterprise value
of $15
billion. Suppose Alcatel-Lucent's debt cost of capital is 7.2 %
and its marginal tax rate is 34 %
a. What is Alcatel-Lucent's WACC?
b. If Alcatel-Lucent maintains a constant debt-equity ratio,
what is the value of a project with average risk and the expected
free cash flows as shown here,
Year 0 1 2 3
FCF ($ million) -100 ...
Luna Corporation has a beta of 1.5, £10 billion in equity, and £5 billion in debt...
Luna Corporation has a beta of 1.5, £10 billion in equity, and
£5 billion in debt with an interest rate of 4%. Assume a risk-free
rate of 0.5% and a market risk premium of 6%. Calculate the WACC
without tax.
Queen Corporation has a debt-to-equity ratio of 1.8. If it had
no debt, its cost of equity would be 16%. Its current cost of debt
is 10%. What is the cost of equity for the firm if the corporate
tax...
Assume the market value of Fords' equity, preferred stock and debt are $7 billion, $4 billion...
Assume the market value of Fords' equity, preferred stock and
debt are $7 billion, $4 billion and $10 billion respectively. Ford
has a beta of 1.4, the market risk premium is 6% and the risk-free
rate of interest is 4%. Ford's preferred stock pays a dividend of
$3 each year and trades at a price of $25 per share. Ford's debt
trades with a yield to maturity of 8.5%. What is Ford's weighted
average cost of capital if its tax...
ADVERTISEMENT
Need Online Homework Help?
Get Answers For Free
Most questions answered within 1 hours.
ADVERTISEMENT
Active Questions
asked 13 minutes ago
asked 22 minutes ago
asked 26 minutes ago
asked 55 minutes ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 2 hours ago
asked 2 hours ago
asked 2 hours ago
asked 2 hours ago