Assume in exercise 4.9 that ABCO also has a pension fund, which has a net asset value of $5 billion, implying that ABCO’s stock is really worth

$9 billion instead of $4 billion. The $5 billion in pension funds is invested in short-term government risk-free securities yielding 5 percent per year.

Recalculate parts a and b of exercise 4.9 to reflect this.

ABCO is a conglomerate that has $4 billion in common stock. Its capital is invested in four subsidiaries:
entertainment (NET), consumer products (CON), pharmaceuticals (PHA), and insurance (INS). The four subsidiaries are expected to perform differently, depending on the economic environment.AppendixLO1

Transcribed Image Text:

Investment Poor in $millions Economy Average Good Economy Economy ENT $1,200 +20% -5% -8% CON 800 +15 +10 -20 PHA 1,400 -10 -5 +27 INS 600 -10 +10 +10