ABCD, a Textile mill,has four main businesses. Beta and percentage of each businessis as follows:
Business Investmentin each businessRs. Beta
- T-Shirts 100,000 1.50
- Jackets 200,000 (0.50)
- ChildrenGarments 300,000 1.25
- Pants &Trousers 400,000 0.75
- Requirement:(5+5+5 Marks)
• What is the beta of ABCD Corporation?
• After the analysis of the market, followinginformation was gathered: risk free rate is 6% and market riskpremium is 5%. What is the ABCD Corporation's required rateof return?
• The above mentioned company is considering thechange in its strategic focus due to changing market trends. As aresult, it want to focus more on children garments, now 50% of itstotal investment will be in Children Garments and this change willreduce its reliance on Pants & Trousers business, while theinvestment in T-Shirts and Jackets will remain the same. What willbe the shareholder's required rate of return if ABCD adoptsthese changes?