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Harrison? Holdings, Inc.? (HHI) is publicly? traded, with a current share price of $ 34 per...

Harrison? Holdings, Inc.? (HHI) is publicly? traded, with a current share price of $ 34 per share. HHI has 21 million shares? outstanding, as well as $ 60 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 $ 861 ?million, and an enterprise value of $ 1.06 billion. After a little? research, you find that the average asset beta of other fast food restaurant chains is 0.77 . 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 the hockey team HHI's asset beta is 1.24 . ? (Round to two decimal? places.) The hotdog equity beta is nothing . ?(Round to two decimal? places.) The value of hockey team is ?$nothing million. ? (Round to one decimal? place.) The beta of? HHI's investment in the hockey team is nothing . ? (Round to two decimal? places.)

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Answer #1

HHI Equity = $34 x 21 million shares = $714 million

HHI debt = $60 million

a). HHI asset beta = (714/(714+60)) 1.34 + (60/(714+60)) 0 = 1.24

b). Hotdog equity beta :

(861/1061) x ?E+ (200/1061) x 0 = 0.77

?E = 0.77 x (1061/861)

?E= 0.95

c). Holdings of Hotdogs = 861/2 = $430.5 million

Value of Hockey Team = (714+60)-430.5 = $343.5 million

d). So, if ? = hockey team beta,

then,

(430.5/(430.5+343.5)) 0.95 + (343.5/(430.5+343.5))x? = 1.24

0.53 + 0.44? = 1.24

? = (1.24 - 0.53) / 0.44

? = 1.60

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