If a firm has a positive debt-equity ratio,and a positive tax rate,then then levered beta for the firm must be ________ the unlevered beta for the firm.
A)less than
B)greater than
C)equal to
D)Can not definitively answer this question.

Question

Quizplus · Accepted Answer

A positive debt-equity ratio indicates that the firm has taken on debt, which increases the financial risk of the firm. This increased financial risk will lead to a higher levered beta compared to the unlevered beta. Therefore, the levered beta for the firm must be greater than the unlevered beta for the firm if it has a positive debt-equity ratio and a positive tax rate.

If a Firm Has a Positive Debt-Equity Ratio,and a Positive