Explore BrainMass
Share

Beta Analysis for Hewlett Packard

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

8. You are analyzing the beta for Hewlett Packard and have broken down the company into four broad business groups, with market values and betas for each group.

Business Group Market Value of Equity Beta
Mainframes $ 2.0 billion 1.10
Personal Computers $ 2.0 billion 1.50
Software $ 1.0 billion 2.00
Printers $ 3.0 billion 1.00

a. Estimate the beta for Hewlett Packard as a company. Is this beta going to be equal to the beta estimated by regressing past returns on HP stock against a market index. Why or Why not?

b. If the treasury bond rate is 2.5%, estimate the cost of equity for Hewlett Packard. Estimate the cost of equity for each division. Which cost of equity would you use to value the printer division?

c. Assume that HP divests itself of the mainframe business and pays the cash out as a dividend. Estimate the beta for HP after the divestiture. (HP had $ 1 billion in debt outstanding.)

© BrainMass Inc. brainmass.com October 25, 2018, 6:48 am ad1c9bdddf
https://brainmass.com/business/issuing-equity/beta-analysis-hewlett-packard-476155

Solution Preview

Please see attached file for response.

8. You are analyzing the beta for Hewlett Packard and have broken down the company into four broad business groups, with market values and betas for each group.
Business Group Market Value of Equity Beta
Mainframes $ 2.0 billion 1.10
Personal Computers $ 2.0 billion 1.50
Software $ 1.0 billion 2.00
Printers
Total $ 3.0 billion
$8.0 billion 1.00

a. Estimate the beta for Hewlett Packard as a company. Is this beta going to be equal to the beta estimated by regressing past returns on HP stock against a market index. Why or Why not?
Answer: Unlevered Beta = 2.0/8.0 x 1.10 + 2.0/8.0 x 1.50 + 1.0/8.0 x 2.00 + 3.0/8.0 x 1.00
= 0.275 + 0.375 + 0.25 + 0.375 = ...

Solution Summary

Answer: Unlevered Beta = 2.0/8.0 x 1.10 + 2.0/8.0 x 1.50 + 1.0/8.

$2.19
See Also This Related BrainMass Solution

10-13 question survey to collect primary data

How do you prepare a 10-13 detailed question survey to collect primary data on a Hewlett-Packard Customer Service after hour team that has not been able to follow the process needed to serve the customer, as well as not able to take ownership of faults and management has done nothing for this to improve? This is an organizational problem. How would that survey look?

View Full Posting Details