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Calculate the unlevered asset betas

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Reference no: EM133112090

As connoisseurs of elegant fast food cuisine, we are interested in making a bid for the Greens-to-Go restaurant division of SlurpCo, Inc.    SlurpCo has three primary divisions, soft drinks, Major League football franchises, and the G to G restaurants.   Given the unique risk profiles for each of these divisions, it is imperative we estimate G to G's divisional beta to determine its fit into our company. Consider the following information:

Company Name

Debt Ratio

Levered Equity   Beta

Marginal Tax Rate

Revenues ($ Mill)

Parent Company

60%

0.95

40%

 

Greens to Go

65%

??

40%

 

 

 

 

 

 

Burger Doodle

35%

0.75

35%

1.95  

Southern Fried Taco

45%

1.25

30%

2.85  

Buffet Pizza Company

40%

1.05

27%

0.75  
  1. Calculate the unlevered asset betas for each of the three comparable firms being sure to adjust appropriately for their respective marginal tax rates
  2. Calculate the arithmetic industry average of the three asset betas 
  3. Calculate the weighted average asset beta using the revenues to determine the weights
  4. Estimate a levered equity beta for the Greens-to-Go division using the both the arithmetic and the weighted averages.

Reference no: EM133112090

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