Task: ABCD, a Textile mill, has four major businesses. Beta and percentage of each business is given below:
Business Investment in each business Rs. Beta
T-Shirts 100,000 1.50
Jackets 200,000 (0.50)
Children Garments 300,000 1.25
Pants &Trousers 400,000 0.75
problem1. What is beta of ABCD Corporation?
problem2. After the investigation of market, following information was collected: risk free rate is 6% and market risk premium is 5%. What is ABCD Corporation’s required rate of the return?
problem3. The above mentioned company is considering revolutionize in its strategic focus because of changing market trends. As consequence, it desire to focus more on children garments, now 50% of its total investment will be in Children Garments and this change will diminish its reliance on Pants and Trousers business, while the investment in T-Shirts and Jackets will remain the same. What will be the shareholder’s required rate of the return if ABCD adopts these changes?