ABCD, a Textile mill, has four main businesses. Beta and percentage of each business
ABCD, a Textile mill, has four main businesses. Beta and percentage of each business is
as follows:
Business Investment in each business value in currency Beta
1.T-Shirts $100,000 1.50
2.Jackets $200,000 (0.50)
3. Children Garments $300,000 1.25
4. Pants & Trousers 400,000 0.75
• What is the beta of ABCD Corporation?
• After the analysis of the market, following information was gathered: risk free
rate is 6% and market risk premium is 5%. What is the ABCD Corporation’s
required rate of return?
• The above mentioned company is considering the change in its strategic focus due
to changing market trends. As a result, it want to focus more on children
garments, now 50% of its total investment will be in Children Garments and this
change will reduce its reliance on Pants & Trousers business, while the
investment in T-Shirts and Jackets will remain the same. What will be the
shareholder’s required rate of return if ABCD adopts these changes?
