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Estimate the beta for the private business

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Reference no: EM132736267

You are told to value a private business for private to private transaction and have the following information:

  • The private business has a D/E ratio of 70%.
  • It has an average correlation with the market of 0.5 (i.e. 50% of the risk in the private business comes from the market).
  • Comparable firms in the same sector have an average beta of 1.5, and an average D/E of 20%.
  • Tax rate is 30%.

Problem a) Estimate the beta for this private business.

Problem b) Would your answer in (a) be different if you were valuing the firm for IPO? Briefly explain.

Reference no: EM132736267

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