Plastic Products Inc. has a levered beta of 1.30, a debt-equity ratio
Plastic Products Inc. has a levered beta of 1.30, a debt-equity ratio of 0.50, and a tax rate of 40%. What is the value of the firm’s unlevered beta?
A) 0.70
B) 1.00
C) 1.30
D) 1.60
ANSWER
B
Explanation: B) βU = βL / (1 + (D/E) (1-t)) = 1.30/(1 + .50(1-.40)) = 1.00.
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