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Category > Business & Finance Posted 31 May 2017 My Price 11.00

You are analyzing the beta of Pewlett Hackard

You are analyzing the beta of Pewlett Hackard, an all equity firm with a 38% tax rate, and have broken down the company into four broad business groups, with market values and betas for each group:

Business Group Market Value Beta

Servers $ 2.0 billion 1.10

Personal Computers $ 2.0 billion 1.50

Software $ 1.0 billion 2.00

Printers $ 3.0 billion 1.00

(a) Estimate the beta for Pewlett Hackard as a company.

(b) If the Treasury bond rate is 3%, and the market risk premium is 5.7%, estimate the cost of equity for Hewlett Packard. Estimate the cost of equity for each division.

(c) Which cost of equity would you use to value a typical project in the printer division?

(d) How would Pewlett Hackard’s cost of equity change if it went from being 100% equity financed to 75% equity and 25% debt financed?

 

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Status NEW Posted 31 May 2017 04:05 AM My Price 11.00

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