What would an investor in mapco stock require as return

Assignment Help Financial Management

Reference no: EM131999518

You run a regression of monthly returns of Mapco, an oil- and gas-producing firm, on the S&P 500 Index and come up with the following output for the period 1991 to 1995.

Intercept of the regression = 0.380%; X-coefficient of the regression =0.55; Standard error of X-coefficient =0.2; R2=55.0%

There are 18.00 million shares outstanding, and the current market price is $6.00/share. The firm has $20.00million in debt outstanding. The firm has a tax rate of 40.00% percent.

1. What would an investor in Mapco’s stock require as a return, if the Treasure bond rate is 4.00%percent? Use 5.00% as the market risk premium?

b. Assume now that Mapco has three divisions. It plans to divest itself of one of the divisions for $22.00 million in cash and acquire another for $67.00 million (it will borrow $45.00 million to complete this acquisition). The division it is divesting is in a business line where the average unlevered beta is 0.35, and the division it is acquiring is in a business line where the average unlevered beta is 0.88. What will the beta of Mapco be after this acquisition?

2. Unlevered beta of Mapco before restructuring?

3. Current firm size?

4. Unlevered beta of the remaining divisions?

5. Firm size after restructuring (i.e. after divesting a division and acquiring the new division)?

6. Total debt after restructuring (i.e., after divesting one division and purchasing a new division)?

7. Unlevered beta after restructuring?

8. Levered beta after restructuring

Reference no: EM131999518

Questions Cloud

Evaluate the key factors involved in sheeped : Discuss how the steps may differ for a health care organization compared to another industry.

What sampling technique will be used to collect your sample : What sampling technique will be used to collect your sample? What population does your sample generalize to? Provide operational definitions for each variable.

Eliminate the risk of changes in the exchange rate : the firm chooses to avoid any hedging techniques designed to reduce or eliminate the risk of changes in the exchange rate.

Explaining the law or agency in detail : Instructions: Please review the various laws and agencies discussed in Chapter 32. Prepare a two page written paper explaining the law or agency in detail

What would an investor in mapco stock require as return : What would an investor in Mapco’s stock require as a return, if the Treasure bond rate is 4.00%percent?

Can we learn to be happy even if life keeps us down : Is happiness a choice? Can we learn to be happy even if life keeps us down? If all you had was 5 dollars to your name, lost your job and house.

Was the communitys experience better or worse than expected : Assume the expected incidence rate for disease A is 245 per 100,000 people. Was the community's experience better or worse than expected?

What are the three ways in which derivatives can be misused : What are the three ways in which derivatives can be misused?

What about sufferers who have never had any trauma : What about sufferers who have never had any trauma to their lives? What makes them think the way they do instead of what is considered normal?

User Account

All Pages