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part(c)
1)-market will have an expected return of 7.224%. The risk-free rate is
given as 5% therefore the market risk premium is 2.224%why we didn’t take beta in this calculation , by using formula beta should be taken right?
2)-Polar Finance’s debt is given as 85% of the total company, meaning that equity of $1,125 million makes up
15%. Debt can be calculated as:
($1,125 million/0.15) × 0.85 = $6,375 million
Post-acquisition level of debt = $6,375 million (Polar) + $2,500 million (additional borrowing)
= $8,875 millionthis calculation confuses me alot , that $1,123 m is divided by 0.15 and multiplied by 0.85.
part(d)
3)-The current share price of Anchorage is $2.60. With 1,600 million shares in issue, this represents a market
capitalisation of $4,160 million. Return on equity is 6.668% (see Working 1). If dividend payments were capitalised at this return on equity, this would suggest a market capitalisation of $4,049 million.how to arrive at $4,040 m when dividend is paid , i don’t know what is it but there is difference of $111m.
1. The answer has taken the beta in the calculation!!!
The equity beta before acquisition is 1.9, and after acquisition is 3.12, and in both cases they have then calculated the cost of equity by multiplying the market premium by the beta and then adding to the risk free rate, as normal.2. If debt is 85% of total market value, then equity is 15% x total market value and therefore total market value = equity/15%
Debt is 85% x total market value, and is therefore 85% x equity/15%3. The 4.049M is the MV calculated assuming that dividends remained constant. The actual MV would be expected to be higher because we would investors will normally be expecting growth in dividends. The fact that the actual market value is only a little higher at 4,160M, suggests that shareholders are expecting little future growth.
part(c)
1)-market will have an expected return of 7.224%. The risk-free rate is
given as 5% therefore the market risk premium is 2.224%why we didn’t take beta in this calculation , by using formula beta should be taken right?
sorry my question is that when calculating market risk premium we didn’t take the beta ,
as market risk premium is not given in question.
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