McDavids is the nations leading fast-food chain, but senior leaders of the company believe that they should
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McDavid’s is the nation’s leading fast-food chain, but senior leaders of the company believe that they should diversify by investing in the aerospace business. They have collected data on a pure play firm in that industry, WeFly Airlines. Both firms finance all of their options with equity and borrow no money. Currently the risk-free rate is 2% and the expected return on the market portfolio is 10%. The required return on McDavid’s stock is 8%. What is McDavid’s stock beta? If WeFly common stock has a beta of 1.25, what return should McDavid’s use to discount the cash flows it expects to earn from an investment in aerospace?
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Principles Of Managerial Finance
ISBN: 9781292400648
16th Global Edition
Authors: Chad Zutter, Scott Smart
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