Question
Brandi Co. has a beta of 1.00. The firm currently has 30% debt, but is considering changing its capital structure to be 20% debt and
Brandi Co. has a beta of 1.00. The firm currently has 30% debt, but is considering changing its capital structure to be 20% debt and 80% equity. If its corporate tax rate is 40%, what is its levered beta at 20% debt level?
Hint: First calculate unlevered beta using old capital structure and then calculate levered beta using the new capital structure.
| a. | 1.01 | |
| b. | 1.10 | |
| c. | 1.75 | |
| d. | 0.91 | |
| e. | 1.19 |
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Personal Finance
Authors: Jeff Madura
5th edition
132994348, 978-0132994347
