Exercise $10.$ Forestry$/$Paper industry $[15]$

The following are the betas of the equity of four forestry$/$paper product companies, and their

debt$/$equity ratios.

All the firms face a corporate tax rate of $40\%.$

Estimate the unlevered beta of each firm. What do the unlevered betas tell you about

these firms?

Assume now that Kimberly Clark is planning to increase its debt$/$equity ratio to $30\%.$

What will its new beta be$?$

If you were valuing an initial public offering in the paper products area, what beta would

you use in the valuation? $($Assume that the firm going public plans to have a debt$/$equity

ratio of $40\%.)$