Question
You are valuing a privately owned company called Outlaws which operates a chain of grocery stores in the High Plains region. To estimate the required
You are valuing a privately owned company called Outlaws which operates a chain of grocery stores in the High Plains region. To estimate the required return of stockholders you need an asset beta for the grocery store business. You have the data in the table below on two pure-play grocery companies.
Data for Pure Play Firms ($B) | ||||
E | Debt | Equity | V | |
General Store | 0.70 | 4B | 6B | 10B |
Red River | 0.90 | 13B | 25B | 38B |
What is the (equally weighted) average of the asset betas for General Store and Red River? Assume that debt betas are zero and that both companies pursue capital structure policies with a fixed debt-to-value ratio. Round your answer to three decimal places.
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