Food Express is a well-established grocery chain. Computer Power is an up-and-coming computer software developer...
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Finance
Food Express is a well-established grocery chain. Computer Power is an up-and-coming computer software developer for business. Bridge Steel is an integrated steel producer, focusing on steel for buildings and bridges. Some information about the companies was provided by an investment banking company as follows:
Expected Cash Flow
Expected Cash Flow Growth Rate
Firm
Beta
Year 1
Years 2 to 5
year 6 and on
Food Express
0.7
$7.4 million
2%
2%
Computer Power
0.92
1.1 million
9%
6%
Bridge Steel
1.31
9.4 million
2.8%
4.8%
If the risk-free rate is 5% and the expected market risk premium is 7%, what is each firm worth?
Value of Food Express (FE) today
$ million
Value of Computer Power (CP) today
$ million
Value of Bridge Steel (BS) today
$ million
If you owned all three companies, what would be the beta of your stock portfolio based on market-value weights?
Portfolio's beta )
Answer & Explanation
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