Terlingua Energy Resources is a privately held, all equity firm. Managers at Terlingua need to estimate equity beta for their common stock. Here is data on four competitors. The four companies are publicly traded, all equity firms.
Company | Beta | Book value of equity ($ million) | Share price ($) | Shares outstanding (millions) |
Hallibuddy Co. | 1.15 | 500 | 17.44 | 40 |
Schlumbertime Ltd. | 1.30 | 1,000 | 66.71 | 30 |
Felix Energy Inc. | 1.50 | 750 | 62.5 | 25 |
Suferior Energy Co. | 1.75 | 2,000 | 76.98 | 20 |
Estimate the Terlingua’s equity beta using the best procedure described in the lecture.
Do not round at intermediate steps in your calculation. Express your answer in decimal form. Round to two decimal places.
Company |
Shares outstanding (millions) |
Share price ($) |
Total Market Value (millions) |
Weight to total market value |
Beta |
Overall Beta |
Hallibuddy Co. |
40 |
17.44 |
697.60 |
0.12 |
1.15 |
0.14 |
Schlumbertime Ltd. |
30 |
66.71 |
2,001.30 |
0.34 |
1.30 |
0.45 |
Felix Energy Inc. |
25 |
62.50 |
1,562.50 |
0.27 |
1.50 |
0.40 |
Felix Energy Inc. |
20 |
76.98 |
1,539.60 |
0.27 |
1.75 |
0.46 |
Total |
5,801.00 |
1.00 |
1.46 |
|||
Therefore, Terlingua’s equity beta = 1.46
Get Answers For Free
Most questions answered within 1 hours.