A large food processor and distributor is considering expansion into a chain of privately owned sports shoes outlets. The food company wishes to estimate the risky discount rate for such investments...

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A large food processor and distributor is considering expansion into a chain of privately owned sports shoes outlets. The food company wishes to estimate the risky discount rate for such investments so as to negotiate a fair price for the acquisition. Unfortunately, there are no stock exchange-listed sports shoe companies with a price history with which a "sports shoe outlet beta" can be estimated. However, executives are considering using the price history of another company to estimate the beta. Which of the following companies would be the most appropriate? Explain.
a. Another large food company
b. a holding company for a football team
c. a company that manufacturers shoes

d. A chain of swimwear and surfboard stores in California

Answered Same DayDec 25, 2021

Answer To: A large food processor and distributor is considering expansion into a chain of privately owned...

Robert answered on Dec 25 2021

129 Votes

In order to estimate the beta, it is imperative that the underlying risk needs to be compared.
Based on the given model, the risk would typically be dependent on the nature of the business
model and ideally, the company should choose another firm which would have presence in
the similar industry for the estimation of the proposed business beta.
Out of the given option, the most suitable or appropriate company to be taken as the
benchmark for...

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A large food processor and distributor is considering expansion into a chain of privately owned sports shoes outlets. The food company wishes to estimate the risky discount rate for such investments...

Answer To: A large food processor and distributor is considering expansion into a chain of privately owned...

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