Subject 1 (20%) The following companies manufacture and sell alpine sports equipment for adventure travelers. In the Table you can find the beta coefficient of each company along with respective financial leverage in terms of the Debt to Equity ratios. Company Atlas Olympus Alps Himalayas Beta 1.35 1.29 1.42 1.09 Debt/Equity Ratio 48.98% 23.15% 33.21% 26.25% The corporate tax rate is 20%. Required: A. Briefly describe what the beta coefficient shows and how it is estimated. (5 points) B. What is the unlevered beta of each firm? What is the information content of the unlevered betas? (5 points) C. The management of Himalayas plc. is thinking of increasing its financial leverage to 40% in terms of debt to equity, in order to make a new Capex investment. What will the new beta of the company be? (5 points) D. Assume that Caucasus Inc., a company that is in the sports equipment for adventure travelers industry, plans their IPO. The company's debt/equity ratio is 20% and its corporate tax rate is 25%. If you wish to value the company what beta would you use in the estimation of the cost of equity? (5 points)