Answered step by step
Verified Expert Solution
Question
1 Approved Answer
You are calculating an equity required rate of return for Hewitt & Co, Inc. (NYSE:HP) using the CAPM. Rather than relying on the published beta
- You are calculating an equity required rate of return for Hewitt & Co, Inc. (NYSE:HP) using the CAPM. Rather than relying on the published beta for HP or calculating one yourself, you are going to base your required rate of return on the betas of two comparable companies: Halliburton Company (NYSE:HAL) and Precision Drilling Corporation (TSX:PD). The current yield on a 30-year T-Bond is 1.57 percent and the current implied market equity risk premium is 5.25%. Given the information below, calculate the required return on HP equity using the average unlevered beta for the comparable firms, re-levered to reflect HPs capital structure. Show all your work!
Company | Published Beta | Market Cap | Debt | Tax Rate |
PD | 2.62 | 1,520.2 | 1,152.3 | 0.35 |
HAL | 1.71 | 19,120.5 | 11,503.0 | 0.21 |
HP |
| 4,774.3 | 531.5 | 0.21 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started