Suppose a firm’s business operations are such that they 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, 1.9, 6.5, and 28. (Do not round intermediate calculations. Round your answers to 1 decimal place, e.g., 32.1.) |
Asset beta = 1.0
If debt-equity ratio is 0.0:
Equity beta = Asset beta * [1 + Debt-equity ratio]
Equity beta = 1.0 * [1 + 0.0]
Equity beta = 1.00
If debt-equity ratio is 1.9:
Equity beta = Asset beta * [1 + Debt-equity ratio]
Equity beta = 1.00 * [1 + 1.9]
Equity beta = 1.00 * 2.9
Equity beta = 2.9
If debt-equity ratio is 6.5:
Equity beta = Asset beta * [1 + Debt-equity ratio]
Equity beta = 1.0 * [1 + 6.5]
Equity beta = 1.0 * 7.5
Equity beta = 7.5
If debt-equity ratio is 28.0:
Equity beta = Asset beta * [1 + Debt-equity ratio]
Equity beta = 1.0 * [1 + 28.0]
Equity beta = 1.0 * 29.0
Equity beta = 29.0
Suppose a firm’s business operations are such that they mirror movements in the economy as a...
#12 Suppose a firm’s business operations are such that they 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, 2.1, 6.7, and 30. (Do not round intermediate calculations. Round your answers to 1 decimal place, e.g., 32.1.) Debt-Equity Ratios: 0 2.1 6.7 30
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
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