20- Suppose a firm’s business operations are such that they mirror movements in
ID: 2784359 • Letter: 2
Question
20-
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, 1.6, 6.2, and 25. (Do not round intermediate calculations. Round your answers to 1 decimal place, e.g., 32.1.)
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, 1.6, 6.2, and 25. (Do not round intermediate calculations. Round your answers to 1 decimal place, e.g., 32.1.)
Explanation / Answer
Equity Beta = Beta Asset x (1 + D/E) = 1 x (1 + D/E)
D/E Equity Beta 0 1.0 1.6 2.6 6.2 7.2 25 26.0Related Questions
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