Reva Motors is a new entrant in the auto industry in India. It specializes in small, customized Electric vehicle cars, designed for middleclass Indian customers. Relative to its competitors in the auto industry, Reva Motors is highly leveraged. Assume that the risk-free rate is 6% and market risk premium is 7%. As an analyst, you are working with the following data on a set of comparable firms. Reva Motors has a target Debt to Equity capitalization of 1.5. The beta of debt for Reva Motors is assumed to be negligible. The beta of debt for the comparable firms is also assumed to be negligible. The marginal corporate tax rate can be taken as 25%. Company Name Levered Equity Debt/Equity Capitalization Betas G Car Co. Ltd. -0.2 0 DF Automobile 0.2 0.70 AH Auto Co. 2 1.8 What is the estimated equity beta for Reva Motors and what is the cost of equity beta? Size of all firms are similar so no weighted average is required. 151