Question
Capital structure & leverage (Session 4&5) (10 marks) (Submission in Excel only) A few publicly listed home appliance manufacturing companies have the following beta, debt,
Capital structure & leverage (Session 4&5) (10 marks) (Submission in Excel only)
A few publicly listed home appliance manufacturing companies have the following beta, debt, and equity:
Company | Beta | Debt | Equity |
Apple | 1.4 | 2,500 | 3,000 |
Pear | 1.2 | 5 | 200 |
Grape | 1.2 | 540 | 2,250 |
Tomato | 0.7 | 8 | 300 |
Watermelon | 1.5 | 2,900 | 4,000 |
Calculate the beta of the industry keeping in mind the publicly listed sector only, with a debt equity ratio of 25%. (Assume a Tax Rate for all companies at 35%) (Hint- One way is to compute the unlevered betas of each of the five firms and then average these
unlevered betas and substitute it as the unlevered beta for a private company)
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