A company is going to open a new division. The division will be financed with $1 million in debt and $3 million in equity. The
A company is going to open a new division. The division will be financed with $1 million in debt and $3 million in equity. The tax rate is 15% for all firms. The risk-free rate is 1% and market portfolio return is 7%. The yield on the divisions debt is 4%. The information on the relevant pure play companies is given below:
| Pure Play Firm | Beta | Debt/Equity |
| A | 1.5 | 0.6 |
| B | 0.8 | 0.2 |
What is the project beta of the pure play firm B?
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Authors: Judith J. Baker, R.W. Baker
4th Edition
1284029867, 978-1284029864
