Please answer the following finance questions. PLEASE SHOW AND PROVIDE EXPLANATI
ID: 2621601 • Letter: P
Question
Please answer the following finance questions. PLEASE SHOW AND PROVIDE EXPLANATIONS FOR ALL WORK!
1. Guarulhos Autos has a Beta of 1.4. It is interested in buying Sao Luis Tires which has a Beta of 1.2. Guarulhos believes that after the acquisition, its Beta will become 1.3. The expected after-tax earnings from Sao Luis will be $1.37 million for the first year, but this figure will continue to increase by 4% per year in the future. The expected return on the market is 14%, and the riskless rate is 6%. Find the amount that Guarulhos should spend on this acquisition.
2. Calculate the Beta of Maceio Corporation from the following data.
Year___Price of Maceio Stock______Dividend Per Share_____S&P 500 Index_______S&P 500 Dividend_______Riskless rate
______Beginning_____End__________________________Beginning__End
2010____$26________$29____________$1.00___________1450____1450___________3.00%______________2.00%
2011____$29________$32____________$1.05___________1450____1500___________3.20%______________2.50%
2012____$32________$35____________$1.10___________1500____1550___________3.00%______________3.50%
2013____$35________$38____________$1.15___________1550____1500___________3.20%______________3.50%
Explanation / Answer
Guarulhos Autos has a Beta of 1.4. It is interested in buying Sao Luis Tires which has a Beta of 1.2. Guarulhos believes that after the acquisition, its Beta will become 1.3. The expected after-tax earnings from Sao Luis will be $1.37 million for the first year, but this figure will continue to increase by 4% per year in the future. The expected return on the market is 14%, and the riskless rate is 6%. Find the amount that Guarulhos should spend on this acquisition.