Question

g This firm has a levered beta of 1.10, its capital structure consists of 40% debt and 60% equity, and its tax rate is 25%. What would firm's beta be if it used no debt, i.e., what is its unlevered beta

Answer 1

the unlevered beta is 0.786

Step-by-step explanation:

The computation of the unlevered beta is shown below:

Unlevered beta = Equity beta ÷ (1 + (( 1 -tax rate) Market value of debt ÷ Market value of equity))

= 1.10 ÷ (1 +(1 - 40%) × 40% ÷ 60%)

= 0.786

hence, the unlevered beta is 0.786

We simply applied the above formula so that the correct value could come

And, the same is to be considered