Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 14 Oct 2017 My Price 8.00

Apple Computer

Apple Computer has a market capitalization (market value of equity) of $420 billion.

The company has no debt outstanding, a cash balance of $140 billion and is in two

businesses, computers and entertainment, with the computer business having a value

three times that of the entertainment business. The computer business has an

unlevered beta of 1.50 and the entertainment business has an unlevered beta of 1.20.

a. Estimate the beta for Apple’s stock, given its current standing. (1 point)

b. Assume that Apple is considering entering the television business. The

median regression beta for companies in this business is 0.988, the median

debt to equity ratio for these companies is 50% and the median cash as a

percent of firm value is 5%. Estimate the unlevered beta of being in the

television business. (The marginal tax rate for all firms is 40%) (1 point)

c. Now assume that Apple plans to borrow $80 billion to augment their cash

balance and do the following:

•Invest $ 70 billion on the iTV, a flat panel, high-resolution

television, thus entering the television business.

•Pay a special dividend of $100 billion

Estimate the beta of Apple’s equity after this transaction. (The marginal tax

rate is 40%) (3 points)

Answers

Maurice Tutor
(5)
Status NEW Posted 14 Oct 2017 10:10 PM My Price 8.00

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