The Delta Dam Company has a capital structure of 80% risky debt with a β of .9 and 20% equity with a β of 1.6.Their current tax rate is 34%.What is the β if Delta Dam was an unlevered firm?

Question

Quizplus · Accepted Answer

The unlevered beta (β) can be calculated using the formula: β_unlevered = β_levered / [1 + (1 - tax rate) * (debt/equity)]. Substituting the given values: β_unlevered = 1.09 / [1 + (1 - 0.34) * (0.8/0.2)] = 0.44.

The Delta Dam Company Has a Capital Structure of 80