Question
Suppose that firm X is considering entering a business similar to firm Y, a relatively small firm in a single line of business. Firm Y
Suppose that firm X is considering entering a business similar to firm Y, a relatively small firm in a single line of business. Firm Y has a beta of 0.80. Debt to Equity ratios and marginal tax rates for firm X and firm Y are shown below.
Firm Debt/Equity Ratio Tax Rate
X 1.6 26%
Y 0.6 37%
What beta would be appropriate for firm X to use in discounting the cash flows of the proposed project?
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Financial Management Principles And Applications
Authors: Arthur J. Keown
9th Edition
013033362X, 9780130333629
