Question

For the purpose of this question, assume AT&T is all equity financed. a) First, you calculate that AT&T has a covariance with the market of .02, and that the standard deviation of the market’s returns is .3. What is AT&T’s Beta? b) Treasury bills are currently yielding 1%. If you believe the market has a risk premium of 7%, what is the expected return to AT&T? c) AT&T is looking into constructing a new wireless network around San Antonio. The risk inherent in this project is similar to the overall risk of AT&T. Once built, you believe this project will provide cash flows of $10 million/year for the next 20 years. What is the most AT&T should be willing to pay to build this network?

Answer 1

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