EXTRA FINANCE

EXTRA FINANCE - company on google finance) Total Debt =...

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Eric Hagen Mike Samuels David Litner Brian Govberg Extra Credit Assignment Wal-Mart a. Market Cap = $228.82 Billion Total Debt = $47.07 Billion Beta = .18 Debt/Equity Ratio = .718 Price/Share as of 12/5/2008 = $58.21 b. B L = B U [1 + (1-T) (D/E)] .18 = B U [1 + (.6)(.718)] .18 = 1.4308 B U Unlevered Beta = .1258 c. There are only two listed competitors to Wal-Mart listed on Yahoo Finance Costco Total Debt = $2.35 Billion B L = B U [1 + (1-T) (D/E)] .71 = B U [1 + (.6)(.718)] Unlevered Beta = .6158 Target Total Debt = $20.29 Billion B L = B U [1 + (1-T) (D/E)] 1.04 = B U [1 + (.6)(1.494)] Unlevered Beta = .5484 Third Company since only two were listed will be Macy’s (This was a related
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Unformatted text preview: company on google finance) Total Debt = 9.83 Billion B L = B U [1 + (1-T) (D/E)] 1.7 = B U [1 + (.6)(1.105)] Unlevered Beta = 1.022 D. Unlevered Portfolio Beta .25(.1258) + .25(.6158) + .25(.5484) + .25(1.022) = .578 E. Levered Portfolio Beta .25(.18) + .25(.71) + .25(1.04) + .25(1.7) = .9075 F. The results are clearly different. The differences are due to partly the tax rate, but more due to the debt to equity ratio. A company with more debt is going to be more volatile, have increased risk, and also potential for higher return. Levered Beta, in this portfolio, has a higher beta....
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This note was uploaded on 10/20/2010 for the course BADM 115 taught by Professor Bajeux during the Spring '08 term at GWU.

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EXTRA FINANCE - company on google finance) Total Debt =...

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