Question
Levered Equity Beta D/E Ratio Debt Beta A company 3.24 205.16% 0.3 B company 4.05 5663.67% 0.4 C company -0.11 106.22% 0.3 Southwest Airlines -0.01
| Levered Equity Beta | D/E Ratio | Debt Beta | |
| A company | 3.24 | 205.16% | 0.3 |
| B company | 4.05 | 5663.67% | 0.4 |
| C company | -0.11 | 106.22% | 0.3 |
| Southwest Airlines | -0.01 | 14.93% | 0.2 |
1. Estimate the unlevered equity beta for Southwest Airlines. You may assume a 38% tax rate in your calculations.
2. Based on your estimate of Southwest Airlines unlevered equity beta, relever the beta to get an estimate of the firms levered beta.
3. The airline industry was obviously in a very unique position at the end of 2006. Are there any special concerns that you have regarding the estimation of the cost of equity for Southwest Airlines using the procedure described here?
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Bank Funding Financial Instruments And Decision Making In The Banking Industry
Authors: Santiago Carbó Valverde , Pedro Jesús Cuadros Solas , Francisco Rodríguez Fernández
1st Edition
3319307002,3319307010
