Estimate a beta coefficient for kinectica

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Kinectica, Inc. is evaluating a project for manufacturing electronic game controllers. This firm is financed with 40% debt and 60% common stock. Kinectica wishes to estimate the cost of equity for the game controller project. The finance staff has found two single-product public companies that are in the game controller manufacturing business. Company A has a beta of 1.25 and a debt/equity ratio of 1.0. Company B has a beta of 1.6 and a debt/equity ratio of 2.0. Estimate a beta coefficient for Kinectica. Adjust for leverage differences between the single product companies and Kinectica. Assume the corporate tax rate is 0% and the debt beta is .3.

Reference no: EM13278673

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