3.7 The coefficient of the stock of a company is 1.32. Its average market value net...

3.7 The β coefficient of the stock of a company is 1.32. Its average market value net debt ratio is 50%. What is its unlevered β coefficient?

Paper Industry Capital Structure and β Coefficients as of December 2002 (Million US$ except as noted)

Levered Market Net Beta1 Equity2 Debt3 Abitibi-Consolidated4 1.14 4,374 5,770 Bowater Inc. 0.70 1,928 2,278 Domtar Inc.4 0.95 3,356 2,655 International Paper Co. 0.87 16,931 11,823 Meadwestvaco Corp. 0.99 4,186 4,809 Packaging Corp. of America 0.35 1,874 688 Pope & Talbot, Inc. 0.70 186 226 Temple-Inland Inc. 0.93 2,149 1,772 Weyerhaeuser Co. 1.06 10,070 14,041 1Regression of company returns on S&P 500 returns, unadjusted.

2Shares outstanding times share price.

3Book interest bearing debt minus cash and marketable securities.

4Canadian dollars.

Sources: Companies’ 10-Ks and 10-Qs and Deutsche Bank Securities.

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