Use the information for the question(s)below.
You are evaluating a new project and need an estimate for your project's beta.You have identified the following information about three firms with comparable projects:
-The unlevered beta for Blinkin is closest to:
A)0.95.
B)1.10.
C)1.00.
D)0.90.

Question

Use the information for the question(s)below.
You are evaluating a new project and need an estimate for your project's beta.You have identified the following information about three firms with comparable projects: 
-The unlevered beta for Blinkin is closest to:
A)0.95. 
B)1.10. 
C)1.00. 
D)0.90.

Quizplus · Accepted Answer

The unlevered beta is the beta of a company without any debt. From the information given, we can calculate the unlevered beta using the formula: Unlevered Beta = Levered Beta / (1 + (1 - Tax Rate) * (Debt/Equity)). 
For Blinkin, Levered Beta = 1.25, Tax Rate = 40%, and Debt/Equity = 0.4. 
Substituting these values into the formula, we get: 
Unlevered Beta = 1.25 / (1 + (1 - 0.4) * 0.4) = 0.90 (rounded to two decimal places). 
Therefore, the closest answer is D)0.90.

Use the Information for the Question(s)below