Question
Key facts and assumptions concerning Kroger Company, at December 12, 2007, appear below. Using this information, answer the questions following. Facts and Assumptions Yield to
| Key facts and assumptions concerning Kroger Company, at December 12, 2007, appear below. Using this information, answer the questions following. | ||||
| Facts and Assumptions | ||||
| Yield to maturity on long-term government bonds | 4.54% | |||
| Yield to maturity on company long-term bonds | 6.32% | |||
| Coupon rate on company long-term bonds | 7.50% | |||
| Market price of risk, or risk premium | 6.30% | |||
| Estimated company equity beta | 1.05 | |||
| Stock price per share | $ 25.97 | |||
| Number of shares outstanding | 681.2 | million | ||
| Book value of equity | $ 4,965 | million | ||
| Book value of interest-bearing debt | $ 6,674 | million | ||
| Tax rate | 35.0% | |||
| Chapter 8 Problem 21 | ||||
| Information regarding Kroger Company, and four industry competitors is shown below, on December 12, 2007. | ||||
| Company | Equity beta | Interest-Bearing Debt | Market value equity | |
| Kroger Company | 1.05 | $ 6,674.0 | $ 17,690.8 | |
| Safeway Inc. | 0.49 | 5,897.9 | 15,236.3 | |
| Supervalu Inc. | 1.17 | 8,936.0 | 8,054.3 | |
| Whole Foods Markets | 1.16 | 760.9 | 5,762.1 | |
| Winn Dixie Stores Inc. | 2.56 | 160.1 | 916.8 | . |
| a. | Estimate the industry asset beta, weighting each company by its proportion of total market value of equity. | |||
| b. | Relever the industry asset beta to reflect Kroger's capital structure, and to make another (industry-informed) estimate of Kroger's equity beta. |
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
