(i) In mid-2015, Cisco Systems had a market capitalization of $99 billion. It had A-rated debt of $18 billion as well as cash and short-term investments of $52 billion, and its estimated equity beta at the time was 1.16. 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.
(ii) Consider the following airline industry data from mid-2009:
a. Use the estimates in Table 12.3 to estimate the debt beta for each firm (use an average if multiple ratings are listed).
b. Estimate the asset beta for each firm.
c. What is the average asset beta for the industry, based on these firms?