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Unformatted text preview: ting the company or
companies that have a single line of business,
Examples of pure plays
where this line of business is similar to the
project's, helps in estimating the market risk of a
project. We estimate a project's asset beta by
starting with the pure-play's equity beta. We can
estimate the pure-play's equity beta by looking at
the relation between the returns on the purePOSCO
play's stock and the returns on the market. Once
American Water Works Water utility
we have the pure-play's equity beta, we can then
Source: Value Line Investment Survey
"unlever" it by adjusting it for the financial
leverage of the pure-play company.
Suppose a pure-play company has the following financial data:
βequity = 1.1
Debt = $3,914 million
Equity = $4,468
Its asset beta, βasset, is 0.6970:
⎥ = 0.6970
βasset = 1.1 ⎢
$3, 914 ⎞ ⎞ ⎥
⎢ ⎜1 + ⎜ (1 − 0.34)
$4, 468 ⎟ ⎠ ⎥...
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at University of Arizona- Tucson.
- Spring '07