Question
You would like to estimate the unlevered beta of Schwartz Industries (SI). SI's value of outstanding equity is $365.45 million, and you have estimated its
You would like to estimate the unlevered beta of Schwartz Industries (SI). SI's value of outstanding equity is $365.45 million, and you have estimated its beta to be 1.20 . SI has four-year zero-coupon debt outstanding with a face value of $200 million, which currently trades for $ 134.54 million. SI will pay no dividends and will reinvest all of its earnings over the next four years. The four-year risk-free interest rate is 5.130% . Use the Black-Scholes formula to estimate the unlevered beta of the firm.(Note: the volatility of the market value of SI's assets is either 40%, 50%, or 60%.)
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