part b You are analyzing the beta for FATUKAcompany into three broad business groups, with market values and betas for each group given below:which is 100% equity financed - and have broken down theMarket Value ofBusiness GroupBetaEquityPersonal$ 3.0 billion|1.50ComputersSoftware$ 2.0 billion2.00Printers$ 3.0 billion|1.00(a) Estimate the beta for FATUKA as a company. Is this beta going to be equal to the beta estimatedby regressing past returns on FATUKA stock against a broad market index. Why or Why not?(b) If the treasury bond rate is 5%, estimate the cost of equity for FATUKA assuming equity riskpremium of 5.5%. Also estimate the cost of equity for each division.(c) The Finance department uses FATUKA’a cost of equity for capital budgeting purposes. How mightthis standard distort capital allocation across different business groups?

Beta is measure of risk of security against market and it indicates that how there is change in…

Answered: part b | bartleby

Business

Finance

part b

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter13: Valuation: Earnings-based Approach

Section: Chapter Questions

Problem 13PC

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