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g This firm has a levered beta of 1.10, its capital structure consists of 40% debt and 60% equity, and its tax rate is 25%. What would firm's beta be if it used no debt, i.e., what is its unlevered beta

Respuesta :

Answer:

the unlevered beta is 0.786

Explanation:

The computation of the unlevered beta is shown below:

Unlevered beta = Equity beta ÷ (1 + (( 1 -tax rate) Market value of debt ÷ Market value of equity))

= 1.10 ÷ (1  +(1 - 40%) × 40% ÷ 60%)

=  0.786

hence, the unlevered beta is 0.786

We simply applied the above formula so that the correct value could come

And, the same is to be considered

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