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Levered Equity Beta D/E Ratio Debt Beta A company 3.24 205.16% 0.3 B company 4.05 5663.67%...

Levered Equity Beta D/E Ratio Debt Beta
A company 3.24 205.16% 0.3
B company 4.05 5663.67% 0.4
C company -0.11 106.22% 0.3
Southwest Airlines -0.01 14.93% 0.2

1. Estimate the unlevered equity beta for Southwest Airlines. You may assume a 38% tax rate in your calculations.

2. Based on your estimate of Southwest Airlines’ unlevered equity beta, relever the beta to get an estimate of the firm’s levered beta.

3. The airline industry was obviously in a very unique position at the end of 2006. Are there any special concerns that you have regarding the estimation of the cost of equity for Southwest Airlines using the procedure described here?

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ekkarill92 answered 2 years ago
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