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In​ mid-2015, Cisco Systems had a market capitalization of $ 129 billion. It had​ A-rated debt of $ 21 billion as well as cash and​ short-term investments of $ 61 ​billion, and its estimated equity beta at the time was 1.38. a. What is​ Cisco's enterprise​ value? b. Assuming​ Cisco's debt has a beta of​ zero, estimate the beta of​ Cisco's underlying business enterprise.

Respuesta :

saqib097

Answer:

a. What is​ Cisco's enterprise​ value?

EV = E + D - C = 129 + 21 - 61 = $89 billion.

b. Assuming​ Cisco's debt has a beta of​ zero, estimate the beta of​ Cisco's underlying business enterprise.

The net debt is (21 - 61) = -40.

RU = (129/89)*1.38 + (-40/89)*0 = 2.00

The beta of​ Cisco's underlying business enterprise is 2.

Tundexi

The value of​ Cisco's enterprise is $89 billion and the beta of​ Cisco's underlying business enterprise is 2.

Enterprise value = Market capitalization + Debt - Cash & short-term investment

Enterprise value = $129 billion + $21 billion - $61 billion

Enterprise value = $89 billion.

Therefore, the value of​ Cisco's enterprise is $89 billion.

 

Net debt = $21 billion - $61 billion

Net debt = -$40 billion

 

Beta = (Market capitalization/Enterprise value)*Estimated equity beta + (Net debt/Enterprise value)*Debt beta

Beta = (129/89)*1.38 + (-40/89)*0

Beta = 2.0002247191 - 0

Beta = 2.00

Therefore, the beta of​ Cisco's underlying business enterprise is 2.

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