The following are the betas of the equity of four beverage product companies in China, and their debt/equity ratios.

		D/E	Unlevered Beta
CR Beer		20.91%	0.96
Tsingtao		40.14%	0.85
Wulangyie		30.50%	0.83
Watsons		21.29%	0.82

(All the firms face a corporate tax rate of 25%)

A. Given the unlevered beta of each firm, what do the unlevered betas tell you about these firms? Why we do not calculate pure business beta?

B. Assume now that Watsons is planning to increase its debt/equity ratio to industry average (the simple average of the four companies). What will its new beta be?

C. If you were valuing an initial public offering in the beverage products area in China, what beta would you use in the valuation? (Assume that the firm going public plans to have a debt/equity ratio of 20%.)