Your firm has two divisions, Mobile, which is in the mobile devices business, and Networks, which is in the network equipment business. The market value of your firm’s assets overall is $10 billion, of which the mobile division makes up $3 billion and the networks division $7 billion. Your firm has debt valued at $2 billion and the debt is risk-free. A regression of the excess return on your firm’s equity on the excess return on the market yields a beta of 1. The risk-free rate is 3.6% and the expected return on the market is 7.7%. Assume throughout that the CAPM holds. The beta of the corporate bond index is 0.5.
a) Compute the beta of your firm’s assets.
b) Compute the expected return on your firm’s assets.
