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You are about to undertake a project. Your firm has already undertaken a project of equivalent risk, which had an equity beta of 2 and

You are about to undertake a project. Your firm has already undertaken a project of equivalent risk, which had an equity beta of 2 and a debt-equity ratio of 1.75. Assume the debt is risk-free. Estimate the beta for your projects equity if projects have constant overall betas (i.e., asset betas), but the debt-equity ratio is now 0.5. Hint: You must convert the debt-equity ratio into a debt-asset ratio. Use the balance sheet equation.

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