Suppose a firm’s business operations mirror movements in the economy as a whole very closely—that is,...
|
Suppose a firm’s business operations mirror movements in the economy as a whole very closely—that is, the firm’s asset beta is 1. Find the equity beta for this firm for debt-equity ratios of 0, 1.8, 6.4, and 27. (Do not round intermediate calculations and round your answers to 1 decimal place, e.g., 32.1.) |
| Debt-Equity Ratio | Equity Beta |
| 0 | |
| 1.8 | |
| 6.4 | |
| 27 |
Homework Answers
| Levered Beta = Unlevered Beta x (1 + ((1 – Tax Rate) x (Debt/Equity))) |
| levered beta = 1*(1+((1-0)*(0))) |
| levered beta = 1 |
| Levered Beta = Unlevered Beta x (1 + ((1 – Tax Rate) x (Debt/Equity))) |
| levered beta = 1*(1+((1-0)*(1.8))) |
| levered beta = 2.8 |
| Levered Beta = Unlevered Beta x (1 + ((1 – Tax Rate) x (Debt/Equity))) |
| levered beta = 1*(1+((1-0)*(6.4))) |
| levered beta = 7.4 |
| Levered Beta = Unlevered Beta x (1 + ((1 – Tax Rate) x (Debt/Equity))) |
| levered beta = 1*(1+((1-0)*(27))) |
| levered beta = 28 |
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