Question

Hi, I have a set of three similar questions here. I don't necessarily need them all answered. Maybe just one or two, what I really need is the formulas used in solving these types of questions and an explanation of that, which doesn't need to be detailed, just an explanation of the notation and variables used. Please!! Thanks!

25. A levered firm has a debt-to-equity ratio of 0.38 and an equity beta of 1.42. What would be the beta of the firm if it switched to an all-equity financial structure?

A) 1.420 B) 0.704 C) 0.972 D) 0.939 E) 1.029

26. Metal Roofs has an equity beta of 1.47, a capital structure with three parts of debt for every five parts of equity, and a zero tax rate. What is its asset beta?

A) 1.048 B) 0.940 C) 1.102 D) 1.006 E) 0.919

27. An all-equity firm has a beta of 0.94. Assume the beta of debt is equal to the risk-free beta. If the firm changes to a debt-equity ratio of 0.35, its equity beta would be ________, and if it changes its debt-equity ratio to 0.40, its equity beta would be ________.

A) 1.269; 1.316 B) 1.269; 1.234 C) 1.190; 1.234 D) 1.190; 1.316 E) 1.234; 1.316

Answer 1

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