HNT is an all-equity firm with a beta of .88.What will the firm's equity beta be if the firm switches to a debt-equity ratio of .35?

Question

Quizplus · Accepted Answer

The correct answer is D.The equity beta of a firm with a debt-equity ratio of .35 can be calculated using the following formula:Equity beta = Unlevered beta / (1 + (1 - Tax rate) * Debt-equity ratio)Assuming a tax rate of 40%, we get:Equity beta = 0.88 / (1 + (1 - 0.4) * 0.35) = 1.19

HNT Is an All-Equity Firm with a Beta of