Time Waner, the entertainment conglomerate, has a beta of 1.71. Part of the reason for the high beta is the debt left over from the leveraged buyout of Time by Waner in 1989, which amounted to $10 billion in 1995. The market value of equity at Time Waner in 1995 was also $10 billion. The marginal tax rate was 40%.

a) Estimate the unlevered beta for Time Waner. Show your calculations.

b) What would be the impact on the leveraged beta, if Time Waner were to reduce its Debt to Equity ratio from 1 to 0.7. Show your calculations.