Question

Taggart Transcontinental hs a market cap of $4.5 billion, total enterprise value (including net debt) of $8 billion, an equity beta of 1.1, and a debt beta of 0.10. Your estimate of the asset beta for Taggart Transcontinental is closest to: A) 0.42 B) 0.59 C) 0.66 D) 0.71 E) 1.1

Answer 1

C) 0.66

Step-by-step explanation:

Market capitalization = $4.5 billion

Total enterprise value = $8 billion

Total Debt = ($8 billion - $4.5 billion) = $3.5 billion

Weight of Equity = $4.5 billion/$8 billion = 0.5625

Weight of debt = $3.5 billion / $8 billion = 0.4375

Beta of Debt = 0.10

Beta of Equity = 1.1

Asset Beta = 0.5625*1.1 + 0.4375*0.10

Asset Beta = 0.6625