Question

Answer 1 of 1 a. For Business segments Business Segment Unlevered Beta adjusted for cash Media Networks Parks & Resorts Studio Entertainment 1.0993 Consumer products 0.6752 Interactive Unlevered beta 1.002425 1.0313 6677 .0668 6034 1.0085 0.7024 1.2187 BUL = ßL/ (1 + (1-tarrate)( Debt/ Equity)) Beta unlevered adjusted for cash Ladjustedforcash BUL/(1- (Cash/Firmvalue) b. Unlevered betas for a firm Median regression beta for interactive business 1.03 (beta levered) DE for Disney 13% 0, 13 Marginal tax rate-36% Beta unlevered 0.95088 using BuL = ßL/ (1 + (1-tan-rate)(Debt/ Equity)) Adjusting for cash, Beta unlevered - 0.95088/(1- 0.1725) 1.1490997 C. Levered beta for the firm B1-BUL 1 (1- tarrate) (Debt/Equity)) Beta levered for Disney = 1.2445968

Answer 1

Please note:

1. A screenshot of my excel file in show formula mode - so that you can see the formula in each cell and understand the mathematics.
2. The row below the heading also gives you an idea as how each column has been calculated
3. I have then attached my final table so that you can see the final answer after typing in the excel formula
4. Part (a) and (b) have been calculated in first part of the table
5. Part (c): is shown below
   1. Rating: A; Risk spread corresponding to rating A = 1%
   2. Risk free rate = 2.75%
   3. Pre tax cost of debt, Kd = Risk free rate + Risk spread = 2.75% + 1.00% = 3.75%
   4. After tax cost of debt = Kd x (1 - Tax rate) = 3.7%% x (1 - 36.1%) = 2.3963%
   5. I have used 3.7% and 2.3963% in second table. You now understand how they had been calculated.
6. Part (d) is calculated in second table
7. I have expressed all the results upto four places of decimal. Please round off the output as per your need.

Disney Part (b) Cost of equity Comparable Disney D/E Corporate Comparable firm's Firms Risk Free rate Equity risk premium ltax rate tparta) 1ewsed beta unlevered beta |Ratio(%) 2 Business Segment Rf Bu D984) 0.0275 10.361-985.(1+(1F985)'Dasǐ 0.0275 D87)0.0275 Cot otd 98611 E986)*D986) 0.0275 -C988 (1+1-E988) 0.0576 0.0576 0.0576 0.0576 0.0576 0.10030.361 984 Media Networks 985 Parks & Resorts 86 Studio Entertainment 987 Consumer Products 988 Interactive 89 Disney Operations 1.0313 024 1.0993 6752 1.2187 0.1141 G986+F 986, H986 0.361 0.361 0.361 2071 6987+5987 H987 G9aa+F988*H988 LH1-E98 988*(111-E988) 0.0275 0.4107 0.131 361 990 991 Step 2 Disney Pre Comparable Corporate tax tax Cost of Disney After tax Cost of 992 Business Segment Firms C Cost of equity rate debt debt Debt/ Capital Ratio Part (d) Cost of Capital Kd x(1-T) / Cx Kdx (1-T+(1-D/C)x Ke 993 994 Media Networks 995 Parks & Resorts 996 Studio Entertainment 997 Consumer Products 998 Interactive 99 Disney Operations 0.361 0.361 0.361 361 0.361 0.361 0375 -994 (1-D994) 0375 5) 0.0375-E996*11-D996) 0.0375 997(1-D997) 0375-E998*11-D998) 0.0912 0.1024 0.1716 0.5394 0.2911 0.1158 G994 F994+(1-G994)*C994 -G995*F995+(1-6995) C995 996+1 G996) C996 97" F997+( 1-G997). С997 998 F998+(1-6998) *C998 1984 985 G996*F -1987 =1988

Step 1
Business Segment	Comparable Firms	Comparable firm's unlevered beta corrected for cash	Disney D/E Ratio (%)	Disney Corporate tax rate	(Part a) Levered beta	Risk Free rate	Equity risk premium	Part (b) Cost of equity
		Bu	D/E	T	BL = Bu x (1 + (1-T) x D/E)	Rf	Rp	Ke = Rf + BL x Rp
Media Networks		1.0313	10%	36%	1.0974	2.75%	5.76%	9.0710%
Parks & Resorts		0.7024	11%	36%	0.7536	2.75%	5.76%	7.0908%
Studio Entertainment		1.0993	21%	36%	1.2448	2.75%	5.76%	9.9199%
Consumer Products		0.6752	117%	36%	1.1805	2.75%	5.76%	9.5495%
Interactive		1.2187	41%	36%	1.5385	2.75%	5.76%	11.6119%
Disney Operations			13%	36%
Step 2
Business Segment	Comparable Firms	Cost of equity	Disney Corporate tax rate	Disney Pre tax Cost of debt	Disney After tax Cost of debt	Debt / Capital Ratio	Part (d) Cost of Capital
		Ke	T	Kd	Kd x (1 - T)	D / C	D / C x Kd x (1-T) + (1-D/C) x Ke
Media Networks		9.07%	36.10%	3.75%	2.3963%	9.1200%	8.4623%
Parks & Resorts		7.09%	36.10%	3.75%	2.3963%	10.2400%	6.6101%
Studio Entertainment		9.92%	36.10%	3.75%	2.3963%	17.1600%	8.6289%
Consumer Products		9.55%	36.10%	3.75%	2.3963%	53.9400%	5.6911%
Interactive		11.61%	36.10%	3.75%	2.3963%	29.1100%	8.9293%
Disney Operations			36.10%			11.5800%