Question
Suppose music producer Mackleless is considering signing the up and coming artist AriannePetite. The record sales of Mackleless have a market beta of 1, while
Suppose music producer Mackleless is considering signing the up and coming artist AriannePetite. The record sales of Mackleless have a market beta of 1, while Arianne Petite's recordsales have a market beta of 2. The risk-free rate is currently 5%, while the expected market return is 10%.
a. What is the relevant discount factor for Arianne Petite's record sales?
Suppose Arianne Petite requires a sign up bonus of $60 million, and the cash flows from her record sales are expected to be $10 million for the next 10 years.
b. Is signing Arianne Petite a good idea for Mackleless?
c. Does your answer change if Mackleless' beta is used for calculation of the discount factor?
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Ri Rf BRmRf where Rf Risk free return Rm Return from market B Beta ...
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Microeconomics
Authors: Dean Karlan, Jonathan Morduch
1st edition
978-0077332587, 007733258X, 978-0077332648, 77332644, 978-1259163531
