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Find out the firm d equity beta

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Reference no: EM131056671

Firm D is an unlisted private firm. Hence, there are no stock return data to estimate the equity beta of the firm D. The firm D has the debt to equity (D/E) ratio of 0.7. The firm D's tax rate is 35%. And the average industry tax rate (t) is 35%

Assume there are only three other firms  (A, B and C) in the industry as shown below in the table. The table shows equity betas of the firms with the debt to equity ratios.

The firm D wants to use the information available from its industry to determine its equity beta. Find out the firm D's equity beta. (Hint: use unlever and re-lever procedures)

Company

Equity beta

D/E

A

1.5

1.2

B

1.4

1.1

C

0.9

0.7

a) greater than 1.15 

b) greater than 1.06 but less than 1.15 

c) less than 1.0 

d) greater than 1.0 but less than 1.06

Reference no: EM131056671

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