Future Fund, a VC fund, is considering buying a private company, Aerox, specializing in manufacturing aerospace...

 

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Future Fund, a VC fund, is considering buying a private company, Aerox, specializing in manufacturing aerospace products. After obtaining forecasts on Aerox's future cash flows, Future Fund needs to find the right discount rate to value the company. There are no pure-play companies traded in the market with business similar to that of Aerox. However, there are two traded companies, A and B, with businesses in manufacturing aerospace products and advanced auto parts. Both companies are all equity financed with the following information: Company A B (a) 1.0 Company Beta 1.4 1.1 9.0 x Market value weight for aerospace products business 0.5 0.7 % X ) From the information on companies A and B, find the market beta for aerospace product manufacturing. Market value weight for auto parts business (b) Assume that CAPM holds, the risk premium on the market portfolio is 5% and the current risk-free rate is 2%. What is the cost of capital for Aerox? 0.5 0.3 Please round your answers to at least two digits. Future Fund, a VC fund, is considering buying a private company, Aerox, specializing in manufacturing aerospace products. After obtaining forecasts on Aerox's future cash flows, Future Fund needs to find the right discount rate to value the company. There are no pure-play companies traded in the market with business similar to that of Aerox. However, there are two traded companies, A and B, with businesses in manufacturing aerospace products and advanced auto parts. Both companies are all equity financed with the following information: Company A B (a) 1.0 Company Beta 1.4 1.1 9.0 x Market value weight for aerospace products business 0.5 0.7 % X ) From the information on companies A and B, find the market beta for aerospace product manufacturing. Market value weight for auto parts business (b) Assume that CAPM holds, the risk premium on the market portfolio is 5% and the current risk-free rate is 2%. What is the cost of capital for Aerox? 0.5 0.3 Please round your answers to at least two digits.

Answer rating: 100% (QA)

a We will need to multiple each companys beta by the ... View the full answer