A comparable firm (i.e., same industry and similar operations as our firm) has an equity beta of 1.0 and a debt-to-value ratio of 0.3. The debt of the comparable firm is risk-free. Our firm has a debt-to-value ratio of 0.5. Assuming both firms should have the same asset beta, and that our debt is also risk-free, what is a good estimate of our equity beta? Give your answer to the closest 0.1.
A comparable firm (i.e., same industry and similar operations as our firm) has an equity beta of 1.0 and a debt-to-value ratio of 0.3. The debt of the comparable firm is risk-free. Our firm has a debt-to-value ratio of 0.5. Assuming both firms should have the same asset beta, and that our debt is also risk-free, what is a good estimate of our equity beta? Give your answer to the closest 0.1.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A comparable firm (i.e., same industry and similar operations as our firm) has an equity beta of 1.0 and a debt-to-value ratio of 0.3. The debt of the comparable firm is risk-free. Our firm has a debt-to-value ratio of 0.5.
Assuming both firms should have the same asset beta, and that our debt is also risk-free, what is a good estimate of our equity beta? Give your answer to the closest 0.1.
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