Question
You are hired as a manager for AT&T. You are asked to make a presentation as to whether they should undertake the following project. For
You are hired as a manager for AT&T. You are asked to make a presentation as to whether they should undertake the following project. For the purpose of this question, assume AT&T is all equity financed.
a) First, you calculate that AT&T has a covariance with the market of .02, and that the standard deviation of the markets returns is .3. What is AT&Ts Beta?
b) Treasury bills are currently yielding 1%. If you believe the market has a risk premium of 7%, what is the expected return to AT&T?
c) AT&T is looking into constructing a new wireless network around San Antonio. The risk inherent in this project is similar to the overall risk of AT&T. Once built, you believe this project will provide cash flows of $10 million/year for the next 20 years. What is the most AT&T should be willing to pay to build this network?
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The Handbook Of Equity Derivatives
Authors: Jack Clark Francis, William W. Toy, J. Gregg Whittaker
1st Edition
0471326038, 978-0471326038
