Slippery Slope Roof Contracting has an equity beta of 1.2, capital structure with 2/3 debt, and...
Slippery Slope Roof Contracting has an equity beta of 1.2, capital structure with 2/3 debt, and a zero tax rate. What is their asset beta?
Homework Answers
Debt=2/3
Hence equity will be =(1-2/3)=1/3
Hence debt/equity=(2/3)/(1/3)=2
Asset beta=Beta of equity/[1+(1-tax)*debt /equity ]
= 1.2/[1+(1-0)*2/]
=1.2/3
=0.4.
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