The Delta Company has a capital structure of 30% risky debt with a $\beta$ of 1.1 and 70% equity with a $\beta$ of 1.4.Their current tax rate is 30%.What is the $\beta$ for Delta Company?

Question

Quizplus · Accepted Answer

The formula to calculate the unlevered beta of a company is:
Unlevered Beta = Levered Beta / (1 + (1 - Tax Rate) * (Debt / Equity))
Plugging in the numbers given in the question, we get:
Unlevered Beta = 1.4 / (1 + (1 - 0.3) * (0.3 / 0.7))
Unlevered Beta = 1.04
Therefore, the unlevered beta of Delta Company is 1.04.

The Delta Company Has a Capital Structure of 30% Risky β\betaβ

The Delta Company Has a Capital Structure of 30% Risky $\beta$