The Beta of an All-Equity Firm Is 1

question 35

Multiple Choice

The beta of an all-equity firm is 1.2.Suppose the firm changes its capital structure to 50% debt and 50% equity using 8% debt financing.What is the equity beta of the levered firm? The beta of debt is 0.2.(Assume no taxes.)

• A)1.2
• B)2.2
• C)2.4
• D)1.7

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