Question

Wonder Woman’s Art Collection has a levered beta of 1.20, a capital structure that is made of 35% debt and 65% equity, and its tax rate is 30%. What would Wonder Woman’s beta be if it used no debt, (hint - what is its unlevered beta)?

0.83

0.87

0.91

0.95

0.99

The Justice League wants to reduce their cash conversion cycle. What steps would they need to do in order to accomplish this?

a. The Justice League would need to reduce their DSO.

b. The Justice League would need to increase their average inventory without increasing their sales.

c. The Justice League would need to sell common stock in order to retire long-term bonds.

d. The Justice League would need to sell long-term bonds and use the proceeds to buy back some of their common stock.

e. In order to reduce their average accounts payable, the Justice League would need to start paying their bills sooner.

Answer 1

1.

Unlevered beta = levered beta/(1 + (1 - t)D/E)

Unlevered beta = 1.20/(1 + 0.70(0.35/0.65))

Unlevered beta = 0.91

2.

The Justice League would need to reduce their DSO.

Option A is correct.