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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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