This problem tests your understanding of the chapter appendix. Dome Appliance, Inc., a private firm that manufactures home appli- ances, has hired you to estimate the company's beta. You have ob- tained the following equity betas for publicly traded firms that also manufacture home appliances.
|
Firm
|
Beta
|
Debt
|
Market Valueof Equity
|
|
Black & Decker
|
1.19
|
$4,100
|
$6,300
|
|
Fedders Corp.
|
1.20
|
5
|
200
|
|
Helen of Troy Corp.
|
2.14
|
380
|
530
|
|
Salton, Inc.
|
3.25
|
375
|
115
|
|
Whirlpool
|
1.83
|
10,600
|
9,100
|
a. Estimate an asset beta for Dome Appliance.
b. What concerns, if any, would you have about using the betas of these firms to estimate Dome Appliance's asset beta?