Question
We run a delivery service, and we believe our firm has market risk equally between that of UPS and FedEx. We know the following about
We run a delivery service, and we believe our firm has market risk equally between that of UPS and FedEx. We know the following about these 2 firms:
| | Stock Price per share | # shares outstanding | Market Value of Debt |
| UPS | $65 | 0.7 billion | $ 5 billion |
| FedEx | $55 | 250 million | $ 3 billion |
We also have the following data on the securities of these firms:
| | Beta E | Beta D |
| UPS | 0.8 | 0 |
| FedEx | 1.1 | 0.1 |
Assume that our firm has risk-free debt with market value $20 million and equity with market value $450 million. Assume that taxes are not relevant. Please estimate our firm’s equity beta.
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Corporate Finance A Focused Approach
Authors: Michael C. Ehrhardt, Eugene F. Brigham
4th Edition
1439078084, 978-1439078082
