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Question 5 (12 marks) Rapid, a phone company, is considering expanding its operations into the media business. The beta for the company is 0.714, and
Question 5 (12 marks) Rapid, a phone company, is considering expanding its operations into the media business. The beta for the company is 0.714, and its debt-to-equity ratio is 1. The media business is expected to be 50% of the overall firm value, and the average beta of comparable firms is 1.35; the average debt-to-equity ratio for these firms is 50%. The marginal corporate tax rate is 30%. Estimate the beta for Rapid after its expansion, assuming that it decides to finance its media operations with a debt-to-equity ratio of 25%
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