The following are the betas of the equity of four beverage product companies in China, and...
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The following are the betas of the equity of four beverage product companies in China, and their debt/equity ratios. CR Beer Tsingtao Wulangyie Watsons D/E 20.91% 40.14% 30.50% 21.29% Unlevered Beta 0.96 0.85 0.83 0.82 (All the firms face a corporate tax rate of 25%) A. Given the unlevered beta of each firm, what do the unlevered betas tell you about these firms? (1 points) Why we do not calculate pure business beta? B. Assume now that Watsons is planning to increase its debt/equity ratio to industry average (the simple average of the four companies). What will its new beta be? C. If you were valuing an initial public offering in the beverage products area in China, what beta would you use in the valuation? (Assume that the firm going public plans to have a debt/equity ratio of 20%.) The following are the betas of the equity of four beverage product companies in China, and their debt/equity ratios. CR Beer Tsingtao Wulangyie Watsons D/E 20.91% 40.14% 30.50% 21.29% Unlevered Beta 0.96 0.85 0.83 0.82 (All the firms face a corporate tax rate of 25%) A. Given the unlevered beta of each firm, what do the unlevered betas tell you about these firms? (1 points) Why we do not calculate pure business beta? B. Assume now that Watsons is planning to increase its debt/equity ratio to industry average (the simple average of the four companies). What will its new beta be? C. If you were valuing an initial public offering in the beverage products area in China, what beta would you use in the valuation? (Assume that the firm going public plans to have a debt/equity ratio of 20%.)
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SOLUTION A The unlevered beta of each firm represents the systematic risk or business risk of the firms equity It indicates how sensitive the firms eq... View the full answer
Related Book For
Management Accounting
ISBN: 9780730369387
4th Edition
Authors: Leslie G. Eldenburg, Albie Brooks, Judy Oliver, Gillian Vesty, Rodney Dormer, Vijaya Murthy, Nick Pawsey
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