Question
4) You are evaluating a new project and need an estimate for your project's beta. You have identified the following information about three firms with
4) You are evaluating a new project and need an estimate for your project's beta. You have identified the following information about three firms with comparable projects:
| Firm Name | Equity Beta | Debt Beta | Debt to Equity Ratio |
| Lincoln | 1.25 | 0 | 0.25 |
| Blinkin | 1.6 | 0.2 | 1 |
| Nod | 2.3 | 0.3 | 1.5 |
The unlevered beta for Lincoln is closest to:
Explanation:
| Firm Name | Equity Beta | Debt Beta | Debt to Equity Ratio | Percent Equity | Percent Debt | Unlevered Beta |
| Lincoln | 1.25 | 0 | 0.25 |
|
|
|
| Blinkin | 1.6 | 0.2 | 1 |
|
|
|
| Nod | 2.3 | 0.3 | 1.5 |
|
|
|
% equity is calculated as
% debt is calculated as
the unlevered beta is calculated as
The unlevered beta for Blinkin is:
Answer:
The unlevered beta for Nod is::
Answer:
Based upon the three comparable firms, what asset beta would you recommend using for your firm's new project?
Answer:
% equity is calculated as
% debt is calculated as
the unlevered beta is calculated as
the average unlevered beta for the three comparables =
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Financial Management Principles And Applications
Authors: Arthur J. Keown, J. William Petty, John D. Martin, Jr. Scott, David F.
10th Edition
0131450654, 9780131450653
