Compared to the US, the pig farming industry in Germany is small and the only firms in the industry are all privately owned. As a result, you are unable to directly obtain an industry beta for the pig farming industry in Germany.

Because SB only recently went public (its IPO was roughly 6 months ago), there is insufficient return data for you to come up with a reasonable estimate of SB's equity beta.Instead, you can use information on the firm's competitors as a basis for your beta estimation (no additional risk adjustments are necessary). You observe that:

Competitor A. Competitor B. Competitor C

Equity ($m) 1,390 180 400

Debt ($m) 500 200 1,200

Total Capital ($m) 1,890 380 1,600

Equity Beta 0.5 0.6 1.4

You assume that firms in the German pig farming industry are financed similarly to SB's US headquarters.

The risk free rate in both Germany and the US is 4%. You further know the following forecast (on which all investors agree) of the returns on the US market portfolio.The forecast is expected to remain unchanged each year for the next 3 years.

Probability. Return on the market

0.2 -4%

0.5 15%

0.3 30%

Question: Estimate an appropriate equity beta for project Schwein. (Hint: First, use the arithmetic average of the competitors' relevered equity betas as a proxy for SB's equity beta. Second, adjust the US industry beta with the information you have on the German and US stock markets to obtain a German industry beta for the project.).