What is your estimate of the firm equity beta

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The CFO of Sterling Chemical is interested in evaluating the cost of equity capital for his firm. However, Sterling uses very little debt in its capital structure (the firm's debt-to-equity capitalization ratio is only 20%), while larger chemical firms use substantially higher amounts of debt. The following table shows the levered equity betas, debt-to-equity betas, and debt betas for three of the largest chemical firms. Company Name Levered Equity Betas Deb/Equity capitalizacion Assumed Debt betas Eastman Chemical Co. 2.0200 42.69% 0.30 Celanese Corp. 2.6300 82.93% 0.30 Dow Chemical Company 2.5000 29.07% 0.30 a. Use the information given above to estimate the unlevered equity betas of each of these companies. b. If Sterling's debt-to-equity capitalization ratio is .20 and its debt beta is also .30, what is your estimate of the firm's equity beta?

Reference no: EM13263713

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