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QUESTION2: (5 points) VIETTOUR is a firm that specializes in Tourism and Hotel. The firm has been traded for only 2.5 years and gets most of its revenue in Vietnam. You have been asked to estimate a cost of equity for the firm and have collected the following information: • The average regression beta across Tourism is 1.95 and the average market debt to equity ratio for these firms is 35%; the average regression beta for Hotel firms is 1.76 and the average market debt to equity ratio is 40%. The average corporate tax rate for Firms in Tourism sector is 25% while the average tax rate for Firms in Hotel sector is 21%. Assume that the Firm’s operating leverage is similar to the industry’s operating leverage. • VIETTOUR’s book value of equity of 25 billion VND but the market value of equity is 35 billion VND. The firm has a debt with book value of 15 billion VND for the average maturity of 5 years, the cost of debt (interest rate) is 10% and the market interest rate is 15%. The marginal tax rate of the firm is 40%. a. Estimate the bottomup levered beta for VIETTOUR, assuming that 55% of its value comes from Tourism and 45% from Hotel. (3 points) b. Estimate the cost of equity for VIETTOUR, assuming that the Vietnamese Government bond rate is 9% and Vietnamese default spread is 3%, the market risk premium is 7%. According to a recent report by a Government’s agency, the equity market of Vietnam is twice volatile as the bond market, and for this firm, the impact of market risk and country equity risk is similar. (2 points) QUESTION2: (5 points) Expat Explore is a firm that specializes in Entertainment and Tourism. The firm has been traded for only 2.5 years and gets all of its revenue in the United Kingdom. You have been asked to estimate a cost of equity for the firm and have collected the following information: • The average regression beta across Entertainment is 1.64 and the average market debt to equity ratio for these firms is 20%; the average regression beta for Tourism firms is 1.48 and the average market debt to equity ratio is 35%. The average corporate tax rate for Firms in Tourism sector is 40% while the average tax rate for Firms in Entertainment sector is 35%. • Expat Explore’s book value of equity of £500 million but the market value of equity is £2 billion. The book (and market) value of debt is £1 billion. The marginal tax rate of the firm is 40% a. Estimate the bottomup levered beta for Expat Explore, assuming that 60% of its value comes f...
QUESTION2: (5 points)
VIETTOUR is a firm that specializes in Tourism and Hotel. The firm has been traded for only
2.5 years and gets most of its revenue in Vietnam. You have been asked to estimate a cost
of equity for the firm and have collected the following information:
• The average regression beta across Tourism is 1.95 and the average market debt to
equity ratio for these firms is 35%; the average regression beta for Hotel firms is 1.76 and
the average market debt to equity ratio is 40%. The average corporate tax rate for Firms in
Tourism sector is 25% while the average tax rate for Firms in Hotel sector is 21%. Assume
that the Firm’s operating leverage is similar to the industry’s operating leverage.
• VIETTOUR’s book value of equity of 25 billion VND but the market value of equity is 35
billion VND. The firm has a debt with book value of 15 billion VND for the average maturity
of 5 years, the cost of debt (interest rate) is 10% and the market interest rate is 15%. The
marginal tax rate of the firm is 40%.
a. Estimate the bottomup levered beta for VIETTOUR, assuming that 55% of its value
comes from Tourism and 45% from Hotel. (3 points)
b. Estimate the cost of equity for VIETTOUR, assuming that the Vietnamese Government
bond rate is 9% and Vietnamese default spread is 3%, the market risk premium is 7%.
According to a recent report by a Government’s agency, the equity market of Vietnam is
twice volatile as the bond market, and for this firm, the impact of market risk and country
equity risk is similar. (2 points)
QUESTION2: (5 points)
Expat Explore is a firm that specializes in Entertainment and Tourism. The firm has been
traded for only 2.5 years and gets all of its revenue in the United Kingdom. You have been
asked to estimate a cost of equity for the firm and have collected the following information:
• The average regression beta across Entertainment is 1.64 and the average market debt to
equity ratio for these firms is 20%; the average regression beta for Tourism firms is 1.48 and
the average market debt to equity ratio is 35%. The average corporate tax rate for Firms in
Tourism sector is 40% while the average tax rate for Firms in Entertainment sector is 35%.
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stock valuation

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tramy0204

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