The Free-Float Company, a company in the 36% tax bracket, has riskless debt in its capital structure which makes up 40% of the total capital structure, and equity is the other 60%. The beta of the assets for this business is .8 and the equity beta is:

Question

Quizplus · Accepted Answer

The equity beta can be calculated using the formula: Equity Beta = Asset Beta / (1 - Debt Ratio * (1 - Tax Rate)). Substituting the given values: Equity Beta = 0.8 / (1 - 0.4 * (1 - 0.36)) = 1.14.

The Free-Float Company, a Company in the 36% Tax Bracket