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If capital structure results in reduced leverage, the beta of equity after the capital structure change...

If capital structure results in reduced leverage, the beta of equity after the capital structure change should be higher than before the change.

True or False.

Solutions

Expert Solution

Reduction of debt capital in overall capital structure will be leading to a reduction of beta of the company to a large extent because it would be having a lower debt and a lower insolvency risk.

So, when the capital structure will be resulting in a reduced leverage,the beta of the equity after the capital structure changes will be lower than before the change

The given statement is FALSE.

jeff jeffy answered 2 years ago
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