I need help with number 7 and 8 please. The answer to 5 is there.
5. (2 points) How does the cost of equity of NII Holdings compare to two of its competitors America Movil and Telefonica de Peru? Assume investors are globally diversified. Discuss As the cost of equity depends upon the beta factor, the more diversified the portfolio, the lesser the risk, and lesser the beta. Depending upon this factor, the cost of equity of the companies would differ. For example, (Assume that risk free is still 3.08% and MRP is 5.0%) (i) America Movil 3.08% + 1.01*5%-. 0.081 (ii) Telefonica Del Peru 3.08% + 0.35*5% 0.0483 6. (2 points) Explain conceptually what the MSCI Latin Equity Beta is. As part of your answer explain what the MSCI Latin Equity index is as well as why this index may be useful to investors. MSCI Latin equity beta, is the equity beta maintained by the MSCI Inc, and is used as a common benchmark. Equity beta is the beta of the firm with financial leverage (the firm which has debt component). It measures the responsiveness of the firm's stock to the overall market. This index can be useful to investors for finding the expected return of the stock (using CAPM, Capital Asset Pricing Model). Also, this index can measure systematic risk of the firm. 7. (3 points) Estimate the cost of capital of NII Holdings assuming investors are globally diversified. Use your answer to Question 5 part ii as your estimate of the cost of equity. 8. (2 points) What do you think the appropriate growth rate of expected cash flows should be for Nextel Peru. Explain your choice. 9. (3 points) Estimate the value of Nextel Peru. How does it compare to the price Entel is offering? Use your answers to Questions 7 and 8 in your calculations. How much confidence do you have in your answer? Explain why you are or are not confident. 5. (2 points) How does the cost of equity of NII Holdings compare to two of its competitors America Movil and Telefonica de Peru? Assume investors are globally diversified. Discuss As the cost of equity depends upon the beta factor, the more diversified the portfolio, the lesser the risk, and lesser the beta. Depending upon this factor, the cost of equity of the companies would differ. For example, (Assume that risk free is still 3.08% and MRP is 5.0%) (i) America Movil 3.08% + 1.01*5%-. 0.081 (ii) Telefonica Del Peru 3.08% + 0.35*5% 0.0483 6. (2 points) Explain conceptually what the MSCI Latin Equity Beta is. As part of your answer explain what the MSCI Latin Equity index is as well as why this index may be useful to investors. MSCI Latin equity beta, is the equity beta maintained by the MSCI Inc, and is used as a common benchmark. Equity beta is the beta of the firm with financial leverage (the firm which has debt component). It measures the responsiveness of the firm's stock to the overall market. This index can be useful to investors for finding the expected return of the stock (using CAPM, Capital Asset Pricing Model). Also, this index can measure systematic risk of the firm. 7. (3 points) Estimate the cost of capital of NII Holdings assuming investors are globally diversified. Use your answer to Question 5 part ii as your estimate of the cost of equity. 8. (2 points) What do you think the appropriate growth rate of expected cash flows should be for Nextel Peru. Explain your choice. 9. (3 points) Estimate the value of Nextel Peru. How does it compare to the price Entel is offering? Use your answers to Questions 7 and 8 in your calculations. How much confidence do you have in your answer? Explain why you are or are not confident
