Question

please explain how this answer was caculated using a caculator

4. CF Company has a capital structure of debt of $300,000 and equity of $700,000. The company's unleveraged beta (Bu) is 1.0, and its tax rate is 40%. What would be CF Company's leveraged beta (B.)? Bl=Bu[1 + (1 - 1)(D/E)] = 1.0[1 + 0.6(300,000/700,000)] = 1.26

Answer 1

$\bg_white \large Levered Beta = Unlevered Beta * (1+[(1-Tax rate)*\frac{Debt}{Equity}]$

$\bg_white \large Levered Beta = 1 * (1+[(1-0.4)*\frac{300000}{700000}]$

= 1 * (1+ 0.2571)

= 1.2571

Steps : -

First divide Debt By Equity then

Multiply by 0.6 i.e. (1 - 0.4) then

+1 and then

Multiply by (unlevered beta) i.e. 1 ..

YOU WILL GET THE ANSWER ON THE CALCULATOR.

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