question archive Because SB only recently went public (its IPO was roughly 6 months ago), there is insufficient return data for you to come up with a reasonable estimate of SB's equity beta
Because SB only recently went public (its IPO was roughly 6 months ago), there is insufficient return data for you to come up with a reasonable estimate of SB's equity beta
Subject:FinancePrice: Bought3
Because SB only recently went public (its IPO was roughly 6 months ago), there is insufficient return data for you to come up with a reasonable estimate of SB's equity beta. Instead, you can use information on the firm's competitors as a basis for your beta estimation (no additional risk adjustments are necessary). You observe that:
Competitor A Competitor B Competitor C
Equity ($m) 1,390 180 400
Debt ($m) 500 200 1,200
Total Capital ($m) 1,890 380 1,600
Equity Beta 0.5 0.6 1.4
You assume that firms in the German pig farming industry are financed similarly to SB's US headquarters.
Question:
b.) Estimate an appropriate equity beta for project Schwein. (Hint: First, use the arithmetic average of the competitors' relevered equity betas as a proxy for SB's equity beta. Second, adjust the US industry beta with the information you have on the German and US stock markets to obtain a German industry beta for the project.). Show your calculations.
