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An article in the Wall Street Journal on November 8, 2011 reported that U.S.-based Yum Brands has… 1 answer below » An article in the Wall Street Journal on November 8, 2011 reported that U.S.-based Yum Brands has won approval from the Chinese government to purchase Little Sheep Group. Little Sheep owns a chain of hot-pot restaurants and trades on the Hong Kong stock exchange. 1. An article in the Wall Street Journal on November 8, 2011 reported that U.S.-based Yum Brands has won approval from the Chinese government to purchase Little Sheep Group. Little Sheep owns a chain of hot-pot restaurants and trades on the Hong Kong stock exchange. The following table contains information from finance.yahoo.com on View complete question » An article in the Wall Street Journal on November 8, 2011 reported that U.S.-based Yum Brands has won approval from the Chinese government to purchase Little Sheep Group. Little Sheep owns a chain of hot-pot restaurants and trades on the Hong Kong stock exchange. 1. An article in the Wall Street Journal on November 8, 2011 reported that U.S.-based Yum Brands has won approval from the Chinese government to purchase Little Sheep Group. Little Sheep owns a chain of hot-pot restaurants and trades on the Hong Kong stock exchange. The following table contains information from finance.yahoo.com on firms comparable to Little Sheep. Little Sheep’s current D/E ratio is 0.0433. After the merger, they are expected to have Yum’s D/E ratio of 0.13. Assume that all four companies have a tax rate of 35%. Company Brazil Fast Food Corp Biglari Holdings Nathan’s Famous Levered Beta 0.59 D/E ratio 0.06 1.41 0.42 0.38 0.00 a. Assuming debt is risk-free, use the information given above to estimate the unlevered equity betas of each of the comparable companies. b. (Assuming debt is risk-free, what is your estimate of Little Sheep’s levered equity beta? c. If T-Bonds are yielding 2.07% and the market risk premium is 5.74%, what is the required return on Little Sheep’s stock, according to the CAPM? d. If Little Sheep has no preferred stock outstanding and their marginal pre-tax cost of debt is 5.08%, what is their weighted average cost of capital? Document Preview: An article in the Wall Street Journal on November 8, 2011 reported that U.S.-based Yum Brands has won approval from the Chinese government to purchase Little Sheep Group. Little Sheep owns a chain of hot-pot restaurants and trades on the Hong Kong stock exchange. The following table contains information from finance.yahoo.com on firms comparable to Little Sheep. Little Sheep’s current D/E ratio is 0.0433. After the merger, they are expected to have Yum’s D/E ratio of 0.13. Assume that all four companies have a tax rate of 35%.
Company Levered Beta D/E ratio Brazil Fast Food Corp 0.59 0.06 Biglari Holdings 1.41 0.38 Nathan’s Famous 0.42 0.00
Assuming debt is risk-free, use the information given above to estimate the unlevered equity betas of each of the comparable companies.
(Assuming debt is risk-free, what is your estimate of Little Sheep’s levered equity beta?
If T-Bonds are yielding 2.07% and the market risk premium is 5.74%, what is the required return on Little Sheep’s stock, according to the CAPM?
If Little Sheep has no preferred stock outstanding and their marginal pre-tax cost of debt is 5.08%, what is their weighted average cost of capital?
the CAPM?
If Little Sheep has no preferred stock outstanding and their marginal pre-tax cost of debt is 5.08%, what is their weighted average cost of capital?
Group. Little Sheep owns a chain of hot-pot restaurants and trades on the Hong Kong stock exchange. The following table contains information from finance.yahoo.com on firms comparable to Little Sheep. Little Sheep’s current D/E ratio is 0.0433. After the merger, they are expected to have Yum’s D/E ratio of 0.13. Assume that all four companies have a tax rate of 35%.
Company Levered Beta D/E ratio Brazil Fast Food Co…
