You are going to value Lauryn’s Doll Co. using the FCF model.After consulting various sources,...

You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.5, a debt-to-equity ratio of .5, and a tax rate of 21 percent. Based on this information, what is the asset beta for Lauryn’s? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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Expert Solution

Dormula for Asset beta:-

Asset beta = Equity Beta/[1+(1-Tax rate)*(Debt/Equity)]

where, Equity Beta = 1.5

Tax rate = 21%

Debt/Equity = debt-to-equity ratio = 0.5/1

Asset beta = 1.5/[1+(1-0.21)*(0.5)]

Asset beta = 1.5/1.395

Asset beta = 1.08

So, the asset beta for Lauryn’s is 1.08

jeff jeffy answered 1 year ago

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