How was the unleveraged beta calculated as 0.74?

p 28. Winston Company has a debt-to-equity ratio of 15 Current cost of equity is 12%. The corporate tax rate 15 40%. What is Winston Company's unleveraged cost of equity (risk-free interest rate = 5%, market interest rate = 10%)? We can obtain leveraged beta first with given information. rs = rre+ (rm - rrpl => 0.12 = 0.05 + (0.1 -0.05) Bl = 1.4 Then, unleveraged beta is: Bl= Bu[1 + (1 -T)(D/E)] => 1.4 = Bu (1 + 0.6 (1.5)] => Bu = 0.74 Therefore, unleveraged cost of equity is: r's = rf + (rm- TRF)Bu = 0.05 + (0.1 -0.05)(0.74) = 0.087 ( = 8.7%)