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22-07-2020
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Assume that we are in the MM world. The beta of an all-equity firm is 1.4. Suppose the firm changes its capital structure to 40 percent debt and 60 percent equity. What is the equity beta of the levered firm

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ewomazinoade ewomazinoade

25-07-2020

Answer:

2.3

Explanation:

Levered Beta = Unlevered Beta x (1+D/E)

D/E = Debt-to-Equity Ratio

1.4 x (1 + 04 / 0.6) = 1.4 x 1.667 = 2.3

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