Assume that AOL-Time Warner is interested in acquiring the ABC television network from Disney. It has estimated the expected incremental future cash flows from acquiring ABC and desires an appropriate beta in order to compute a discount rate to value those cash flows. However, the two major networks that are most comparable, NBC and CBS, are owned by General Electric and Viacom—respectively—which have substantial cash flows from other sources of businesses. For these comparison firms, the table below presents hypothetical equity betas, debt to asset ratios, and the ratios of the market values of the network assets to all assets:

	ßE	D/(D + E)	Network Assets/All Assets = N/A
General Electric	1.1	0.1	0.25
Viacom	1.3	0.4	0.5

Estimate the appropriate unlevered asset beta for the ABC acquisition. Assume that the debt of each of the two comparison firms is risk free and the marginal tax rate for both is equal to Tc=30%. Further assume that the non-network assets of General Electric and Viacom are substantially similar and thus have the same unlevered asset beta of 0.95.

Answers

a. ß_UA = 1.23

b. ß_UA= 1.0268

c. None of the above

d. ß_UA = 0.8863

Answer rating: 100% (QA)

The detailed answer for the above question is provided below c None of the above To estimate the app... View the full answer