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Financial leverage of the company

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Five Star, Inc. financed its total assets by 50% of equity and 50% of debts. The equity had a beta of 1.2. The financial managers in the company decided to reduce the financial leverage of the company by changing the capital structure as 20% of equity and 80% of debts. Since the business lines of the company did not have any change, the beta of assets of the firm should keep the same. The tax rate of the firm is 30%. What should be the beta of the equity after the firm changed its capital structure? Show me step by step with the formulas.

Reference no: EM131429236

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