Share
Explore BrainMass

Enterprise value and beta of business assets

In Mid-2012, AOL Inc. had $100 million in debt, total equity capitalization of $3.1 billion, and an equity beta of .90 (as report on Yahoo! Finance). Included in AOL's assets was 1.5 billion in cash and risk free securities. Assume that the risk free rate of interest is 3% and the market risk premium in 4%.
A - What is AOL's enterprise value?
B - What is the beta of AOL's business assets?
C - What is AOL's WACC?

Solution Preview

Your corporate finance question was listed as follows:

In Mid-2012, AOL Inc. had $100 million in debt, total equity capitalization of $3.1 billion, and an equity beta of .90 (as report on Yahoo! Finance). Included in AOL's assets was 1.5 billion in cash and risk free securities. Assume that the risk free rate of interest is 3% and the market risk premium in 4%.
A - What is AOL's enterprise value?
B - What is the beta of AOL's business assets?
C - What is AOL's WACC?

This question touches on the different ways that financial analysts consider companies as a mix of equity and debt instruments.

Part A
Enterprise value (EV) is calculated as the sum of debt and equity minus cash and other short term investments. The idea behind EV is that it is what an investor would need to pay to own all the assets of a company after selling off any extra cash or other short term securities that are lying around.
As an example, ...

Solution Summary

The enterprise values and beta of business assets are provided. The AOL's WACC is determined.

$2.19