A firm is valued at $6 million and has debt of $2 million outstanding. The firm has an equity beta of 1.8 and a debt beta of .42. The beta of the overall firm is:

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The beta of the overall firm (asset beta) can be calculated using the formula: $ \beta_{Asset} = \frac{E}{V} \beta_{Equity} + \frac{D}{V} \beta_{Debt} $, where $E$ is the market value of equity, $D$ is the market value of debt, $V = E + D$ is the total value of the firm, $\beta_{Equity}$ is the equity beta, and $\beta_{Debt}$ is the debt beta. Plugging in the given values: $ \beta_{Asset} = \frac{4}{6} \times 1.8 + \frac{2}{6} \times 0.42 = 1.2 + 0.14 = 1.34. $

A Firm Is Valued at $6 Million and Has Debt