You are trying to estimate the cost of capital for La Coste, an upscale specialty retailer. The firm is in only one business, specialty retailing; comparable firms have an average published beta of 1.25, an average debt ratio of 30% and an average tax rate of 40%. The firm has provided you with the following information: The regression beta is 0.65 with a standard error of 0.5. The firms bonds are rated A, and the default spread for A rated bond is 0.02. The company plans to maintain its current debt ratio of 20%. The Treasury bond rate is 0.062 and the equity risk premium is 0.064. The tax rate for La Coste is 40%.

What is the average unlevered beta for the comparable firms?

Estimate La Coste's beta based upon the comparable firms (i.e. Bottom up beta)