Beta Analysis for Hewlett Packard
Not what you're looking for?
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.)
Purchase this Solution
Solution Summary
Answer: Unlevered Beta = 2.0/8.0 x 1.10 + 2.0/8.0 x 1.50 + 1.0/8.
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 = ...
Purchase this Solution
Free BrainMass Quizzes
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.
Balance Sheet
The Fundamental Classified Balance Sheet. What to know to make it easy.
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations
Income Streams
In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.
Basics of corporate finance
These questions will test you on your knowledge of finance.