A firm has an equity beta of 1.2, the risk-free rate is 3.4 percent, the market return is 15.7 percent, and the pretax cost of d ebt is 9.4 percent. The debt-equity ratio is .47. If you apply the common beta assumptions, what is the firm's asset beta
1 answer:
Answer:
0.82
Explanation:
Calculation to determine the firm's asset beta
Using this formula
Firm's asset beta=Equity beta/(1+/D/E)
Let plug in the formula
Firm's asset beta=1.2/(1+0.47)
Firm's asset beta=1.2/1.47
Firm's asset beta=0.816
Firm's asset beta=0.82 (Approximately)
Therefore the firm's asset beta is 0.82
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