Assume That Expansion Ltd Is a Diversified Company That Is

question 44

Multiple Choice

Assume that Expansion Ltd is a diversified company that is considering an expansion project in a mining division.The company has a target debt-equity ratio of 1:2 and this ratio will not be affected by the new project.The company's manager has identified Dig-it-out Ltd as a company with the same business risk as the new project (equity beta of 1.5) .Dig-it-out has a debt-equity ratio of 1:3.What is the beta estimate of Expansion Ltd?

• A)1.69
• B)1.12
• C)1.5
• D)1.75

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