Question
You disagree? Why? In a world without taxes, the asset beta of a levered firm is simply the weighted average of the betas of debt
You disagree? Why?
In a world without taxes, the asset beta of a levered firm is simply the weighted average of the betas of debt and equity:bASSET= (Debt/Asset) bDebt+ (Equity/Asset) bEquity
If corporate debt is risk-free, i.e. bDebt= 0 then:
bASSET= (Equity/Asset) bEquity
Note: this equation is just a rearrangement of equation 18.3 in the text: bEquity= (1 + Debt/Equity)*bASSET.
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Foundations Of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
11th Canadian Edition
1259024970, 978-1259265921
