User Account

All Pages

Estimate of the current value of fintech

Assignment Help Finance Basics
Reference no: EM133111064

You are the manager of a diversified firm with two divisions: consumer goods and finance. The consumer goods division accounts for approximately 50% of the firm's overall value. You want to estimate the (after-tax) weighted average cost of capital for the finance division as well as for the overall firm. Your firm operates with a 40% D/V ratio overall and borrows at Rd = 4%. Your finance division operates with a 35% D/V ratio and also borrows at Rd = 4%. You have already estimated that the consumer goods division has an asset beta (Ba) of 1.1.

You have found a publicly traded comparable firm called Fintech Inc to help you estimate a beta for the finance division. Fintech has an equity beta (Be) of 0.9. It has 2M shares outstanding with a current market price of $25 per share. It also has public bonds outstanding with a total face value of $50M, a stated annual interest rate of 8% (paid semi-annually), and 10 years to maturity. Public bonds with the same credit rating as Fintech have a current average Bond-Equivalent Yield of 6%. Fintech does not have any other debt outstanding.

The current risk-free rate is 2% and the expected market risk premium is 6%. All firms pay a 25% tax rate.

a. What is your estimate of the current value of Fintech, Inc's public bonds?

b. What is your estimate of Fintech, Inc's asset beta (Ba)?

c. What is your estimate of the appropriate equity beta (Be) for the finance division?

d. What is your estimate of the finance division's (after-tax) Weighted Average Cost of Capital?

e. What is your estimate of your firm's overall asset beta (Ba) and its equity beta (Be)?

f. What is your estimate of your firm's (after-tax) Weighted Average Cost of Capital?

Reference no: EM133111064

Questions Cloud

Launch new line of personal care products : you work for the marketing manager of an organization that is going to launch a new line of personal care products in the U.S. market
Calculate the extent to which risk is reduced in portfolio : Consider a portfolio with $5,000, invested 60% in Black Gold Inc., an energy company, and 40% in Bits and Bytes, an information technology firm.
Develop marketing strategy : When companies that sell coffee they develop their marketing strategy, do they concentrate on satisfying their customers' needs or wants?
Slate of directors under cumulative voting : If there are 3.5 million shares outstanding what is the minimum number of shares required to elect your slate of directors under cumulative voting?
Estimate of the current value of fintech : The current risk-free rate is 2% and the expected market risk premium is 6%. All firms pay a 25% tax rate.
What is the expected runoff and infiltration depths : What is the expected runoff and infiltration depths for the same 2 yr 24 hr rain event - The proposal is to convert this forest to a commercial development
Sales cycle might be managed strategically : Give an overview of how Sales Cycle might be managed strategically? Explain how the company above is structured (organisation) to support its sales activities
Space and gross rents for the building : A potential of?ce building development costs $110 per square foot to construct. excluding land costs. The developer now holds an option to purchase the land for
Simulink block diagram in the main body of the report : Example calculations will be sufficient to include in the report alongside the completed tables and will ensure unique reports

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd