In 1980, Saab-Scania plans to enter the agricultural machinery industry. As part of its expansion plan,...

 

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In 1980, Saab-Scania plans to enter the agricultural machinery industry. As part of its expansion plan, Saab-Scania is looking to acquire a company specializing in artificial intelligence-assisted industrial equipment. A potential target is AEye Lab, Inc., a private startup firm with no debt in its capital structure. Saab-Scania is evaluating AEye Lab's two divisions, Software and Robotics. The analyst of Saab-Scania has collected information on historical returns on the market portfolio and the relevant industries: Market portfolio Estimation period Mean return E[TM] 1960-1979 0.16 Variance Var(TM) 0.030 Covariance with the market Software industry Robotics industry Cov(rsw, TM) Cov(TRob, TM) 0.036 0.054 Answer questions a) and b) below. (Lecture notes p.21, and the basic thought experiment concerning the discount rate and valuation) a) Assume that the risk-free rate is 6%. Using the information provided, determine the approximated CAPM betas for AEye Lab's Software and Robotics divisions, respectively, and then calculate the required rates of return on each division. Answer (show the steps/calculation toward your results): In 1980, Saab-Scania plans to enter the agricultural machinery industry. As part of its expansion plan, Saab-Scania is looking to acquire a company specializing in artificial intelligence-assisted industrial equipment. A potential target is AEye Lab, Inc., a private startup firm with no debt in its capital structure. Saab-Scania is evaluating AEye Lab's two divisions, Software and Robotics. The analyst of Saab-Scania has collected information on historical returns on the market portfolio and the relevant industries: Market portfolio Estimation period Mean return E[TM] 1960-1979 0.16 Variance Var(TM) 0.030 Covariance with the market Software industry Robotics industry Cov(rsw, TM) Cov(TRob, TM) 0.036 0.054 Answer questions a) and b) below. (Lecture notes p.21, and the basic thought experiment concerning the discount rate and valuation) a) Assume that the risk-free rate is 6%. Using the information provided, determine the approximated CAPM betas for AEye Lab's Software and Robotics divisions, respectively, and then calculate the required rates of return on each division. Answer (show the steps/calculation toward your results):

Answer rating: 100% (QA)

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