Question
The proportion of debt and equity for Jones Company has been 10% debt, 90% equity, and Jones has a tax rate of 20%. The observed
The proportion of debt and equity for Jones Company has been 10% debt, 90% equity, and Jones has a tax rate of 20%. The observed Equity Beta of Jones has been 1.19 and Jones now wants to compute a WACC when it is at 50% debt, 50% equity.
The unlevered Beta for Jones is _____
(include 2 decimal places)
Use the formula of
( Unlevered Beta ) = ( Equity Beta ) / [ 1 + ( 1 - tax rate )( Debt / Equity )]
Your Answer:__________
The re-levered Beta for Jones when they are at 50% debt, 50% equity is _____
(include 2 decimal places)
Use the formula of
( Re-levered Beta ) = ( Unlevered Beta ) x [ 1 + ( 1 - tax rate )( D / E )]
Your Answer:__________
The proportion of debt and equity for Smith Company has been 80% debt, 20% equity, and Smith has a tax rate of 30%. The observed Equity Beta of Smith has been 0.80 and Smith now wants to compute a WACC when it is at 90% debt, 10% equity.
The unlevered Beta for Smith is _____
(include 2 decimal places)
Your Answer:_____________
The re-levered Beta for Smith when they are at 90% debt, 10% equity is ____
(include 2 decimal places)
Your Answer:____________
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