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As a business valuation expert, you have been allotted with the project to estimate the cost of equity for Alton Holdings. Alton Holdings operates in three different business sectors - Entertainment, Hotels, and Travel Services. The table beneath gives the information you collected both for the firm and for other comparable firms in each business sector. i. ii. iii. Business Sector Entertainment Hotel Travel Alton Holdings Sales Revenues €500 million €500 million €950 million Unlevered beta 0.95 1.15 Comparable Firms 1.45 Value/Sales Revenues 2.5 3.5 1.5 Estimate the (bottom-up) unlevered beta for Alton Holdings. Assume that Alton Holdings has no market-traded debt but €1.3 billion in book debt, an interest expense of €75 million per year, maturity 5 years and corporate bonds with the same credit rating as Alton Holdings yield 7.5%. Estimate the market value of debt of Alton Holdings. Assume next that Alton Holdings has 100 million shares trading at €12 per share. The tax rate is 40%. Estimate the (bottom up) levered beta for the Alton Holdings.

As a business valuation expert, you have been allotted with the project to estimate the cost of equity for Alton Holdings. Alton Holdings operates in three different business sectors - Entertainment, Hotels, and Travel Services. The table beneath gives the information you collected both for the firm and for other comparable firms in each business sector. i. ii. iii. Business Sector Entertainment Hotel Travel Alton Holdings Sales Revenues €500 million €500 million €950 million Unlevered beta 0.95 1.15 Comparable Firms 1.45 Value/Sales Revenues 2.5 3.5 1.5 Estimate the (bottom-up) unlevered beta for Alton Holdings. Assume that Alton Holdings has no market-traded debt but €1.3 billion in book debt, an interest expense of €75 million per year, maturity 5 years and corporate bonds with the same credit rating as Alton Holdings yield 7.5%. Estimate the market value of debt of Alton Holdings. Assume next that Alton Holdings has 100 million shares trading at €12 per share. The tax rate is 40%. Estimate the (bottom up) levered beta for the Alton Holdings.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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As a business valuation expert, you have been allotted with the project to estimate the cost of equity for Alton Holdings. Alton Holdings operates in three different business sectors - Entertainment, Hotels, and Travel Services. The table beneath gives the information you collected both for the firm and for other comparable firms in each business sector. i. ii. iii. Business Sector Entertainment Hotel Travel Alton Holdings Sales Revenues €500 million €500 million €950 million Unlevered beta 0.95 1.15 Comparable Firms 1.45 Value/Sales Revenues 2.5 3.5 1.5 Estimate the (bottom-up) unlevered beta for Alton Holdings. Assume that Alton Holdings has no market-traded debt but €1.3 billion in book debt, an interest expense of €75 million per year, maturity 5 years and corporate bonds with the same credit rating as Alton Holdings yield 7.5%. Estimate the market value of debt of Alton Holdings. Assume next that Alton Holdings has 100 million shares trading at €12 per share. The tax rate is 40%. Estimate the (bottom up) levered beta for the Alton Holdings.
Transcribed Image Text:As a business valuation expert, you have been allotted with the project to estimate the cost of equity for Alton Holdings. Alton Holdings operates in three different business sectors - Entertainment, Hotels, and Travel Services. The table beneath gives the information you collected both for the firm and for other comparable firms in each business sector. i. ii. iii. Business Sector Entertainment Hotel Travel Alton Holdings Sales Revenues €500 million €500 million €950 million Unlevered beta 0.95 1.15 Comparable Firms 1.45 Value/Sales Revenues 2.5 3.5 1.5 Estimate the (bottom-up) unlevered beta for Alton Holdings. Assume that Alton Holdings has no market-traded debt but €1.3 billion in book debt, an interest expense of €75 million per year, maturity 5 years and corporate bonds with the same credit rating as Alton Holdings yield 7.5%. Estimate the market value of debt of Alton Holdings. Assume next that Alton Holdings has 100 million shares trading at €12 per share. The tax rate is 40%. Estimate the (bottom up) levered beta for the Alton Holdings.
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As a business valuation expert, you have been also assigned the project to value Entermusic Company, a manufacturer of guitars, other musical instruments, and consumer and professional electronics. The table that follows gives the firm's estimated free cash flows to equity (FCFE) and the earnings per share (EPS) for the next 4 years. EPS FCFE/Share Year 1 €1.80 €0.60 Year 2 €1.92 €0.75 Year 3 €2.15 €0.98 Year 4 €2.29 €0.99 Entermusic has no debt or working capital needs. The current beta of the firm is 1.6 but it is expected to drop to 1.2 after Year 4. The firm expects its earnings per share and its net capital expenditures to grow 5% per year after Year 4. The debt ratio will remain 0%, the T-bond rate is constant at 7% for the period and the market risk premium is 5%. i. Estimate the terminal value of equity per share at Year 4. ii. Estimate the value per share today.
Transcribed Image Text:As a business valuation expert, you have been also assigned the project to value Entermusic Company, a manufacturer of guitars, other musical instruments, and consumer and professional electronics. The table that follows gives the firm's estimated free cash flows to equity (FCFE) and the earnings per share (EPS) for the next 4 years. EPS FCFE/Share Year 1 €1.80 €0.60 Year 2 €1.92 €0.75 Year 3 €2.15 €0.98 Year 4 €2.29 €0.99 Entermusic has no debt or working capital needs. The current beta of the firm is 1.6 but it is expected to drop to 1.2 after Year 4. The firm expects its earnings per share and its net capital expenditures to grow 5% per year after Year 4. The debt ratio will remain 0%, the T-bond rate is constant at 7% for the period and the market risk premium is 5%. i. Estimate the terminal value of equity per share at Year 4. ii. Estimate the value per share today.
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