Return to Example 20.10, in which Google was contemplating issuing zero-coupon debt due in 16 months with

Question:

Return to Example 20.10, in which Google was contemplating issuing zero-coupon debt due in 16 months with a face value of $163.5 billion, and using the proceeds to pay a special dividend. Google currently has a market value of $229.2 billion and the risk-free rate is 0.25%. Using the market data in Figure 20.10, answer the following:

a. If Google’s current equity beta is 1.2, estimate Google’s equity beta after the debt is issued.

b. Estimate the beta of the new debt.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...