If a firm has an unlevered beta equal to 1.0 a debt-equity ratio of .5
If a firm has an unlevered beta equal to 1.0 a debt-equity ratio of .50 and a tax rate of .30, calculate the value of the firm’s levered beta.
A) 0.65
B) 1.00
C) 1.35
D) 1.73
ANSWER
C
Explanation: C) βL = (1+(D/E)(1-t))* βU
= (1+(.50)(1-.30)*1 = 1.35.
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