Estimate the equity beta for vrc

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VRC Inc., a privately-owned conglomerate, wants to estimate the cost of equity for itself as a business. The company provides you with the operating income it has in each business and the betas of comparable firms in each business line

Business Line

Operating Income

                                    Comparable Firms           Beta D/E Ratio

IT Services                   $ 50 million                     1.60 10%

Aviation                    $ 40 million                        1.20 30%

Financial Services         $ 60 million                   1.15 100%

Question 1: Assuming that the tax rate for all firms is 40%, that the operating income is proportional to divisional value and that VRC has a debt to capital ratio of 40%, estimate the equity beta for VRC.

Reference no: EM132512999

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