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HNT is an all-equity firm with a beta of .88. What will the firm’s equity beta...

HNT is an all-equity firm with a beta of .88. What will the firm’s equity beta be if the firm switches to a debt-equity ratio of .35? Select one: a. .880 b. 8.567 c. .972 d. 1.188 e. 1.204

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The correct option is d. 1.188

If the firm switches to a debt-equity ratio is 0.35, the proportion of equity in total capital structure = 100 / 135 or 0.741

The equity beta will be 0.88 / 0.741 = 1.188

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