Question

In: Finance

Consider a company subject to a corporate tax rate of 0.5. If the company has a...

Consider a company subject to a corporate tax rate of 0.5. If the company has a debt ratio of 0.6, and an unleveraged beta of 0.5, what is the company's leveraged beta?

Solutions

Expert Solution

Answer:

Facts:

Debt/equity= 0.6

Tax Rate= 0.5

Unlevered beta= 0.5

Calculation of levered beta:

Levered beta = Unlevered beta * (1+(1- tax rate)*(debt/equity))

= 0.5*( 1+ (1- 0.5) * (0.6))

= 0.5*(1+ 0.3)

Levered Beta =0.65


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