calculate a “forward-looking”, re-levered beta for Juniper Networks, Inc.
Juniper Networks, Inc. designs, develops and sells network products and services worldwide. It offers routing products, switching products, cybersecurity products and network operating systems. The company is considering using more debt in its capital structure than it has historically used. The company’s Debt/Equity Ratio at 12/31/21 was 0.42. The company is targeting an increase its Debt/Equity to 1.25.
1. Using the “bottoms-up” approach discussed in Chapter 7 of the DePamphilis textbook, calculate a “forward-looking”, re-levered beta for Juniper Networks, Inc. Assume a target Debt/Equity ratio for the company of 1.25 and the industry’s average tax rate of 25%. Show your work in detail. You may want to use Excel as your calculation tool. (25 points).
Juniper’s management has determined that the following firms are comparable companies for this analysis. Using these firms’ most recent financial statements (Form 10-K) for the financial data and Yahoo Finance to find each firm’s beta, calculate these firm’s unlevered betas to get an industry average unlevered beta to use in this analysis. In calculating total debt, make sure you capture short-term debt, long-term debt and lease obligations.
Palo Alto Networks, Inc
Check Point Software Technologies, Ltd.
CyberArk Software, Ltd.
CACI International, Inc.
Akamai Technologies, Inc
2. Calculate the company’s cost of equity and WACC using the current (historical) beta provided by Yahoo Finance. For the pre-tax cost of debt, use the interest expense paid by the company on its average debt outstanding for the most recent fiscal year.
3. Calculate the company’s forward-looking cost of equity using the “forward-looking”, re-levered beta from question #1.