***The marginal tax rates for both firms is 20%. You are a commercial cleaning firm that is considering an investment in a non-public biotech firm. Your firm has a D/E ratio of 3 Youve identified a pure-play firm in the biotech industry whom has : beta of 1.5 Debt to Equity ratio of 2

Part A: What is the unlevered beta for the comparable firm?

Part B: Assuming a 3% interest on treasuries and a 4% market risk premium, what should you use for the cost of equity for the firm you are considering buying? what should you use for the cost of equity for the firm you are considering buying?

Part C: What is the beta for your firm using the Blume adjustment? (note this is in the text, and is also called the adjusted beta)