Barges has an asset beta of .57,the risk-free rate is 4.3 percent,and the market risk premium is 7.7 percent.What is the equity beta if the firm has a debt-equity ratio of .56?

Question

Quizplus · Accepted Answer

The equity beta ($\beta_{equity}$) can be calculated using the formula: $\beta_{equity} = \beta_{asset} (1 + (1 - tax rate) \times debt/equity ratio)$. Since the tax rate is not provided, we assume it to be 0 for simplicity, making the formula: $\beta_{equity} = \beta_{asset} (1 + debt/equity ratio)$. Plugging in the given values: $\beta_{equity} = 0.57 \times (1 + 0.56) = 0.57 \times 1.56 = 0.8892$, which rounds to 0.89.

Barges Has an Asset Beta of