Question

What is the equity beta for a firm with asset beta equal to 0.9, and D/E ratio of 0.4, and tax rate equal to 35%?

Answer 1

the equity beta of the firm is 1.134

Step-by-step explanation:

The computation of the equity beta is shown below:

Equity beta is

= Asset beta × [1 + (1 - tax rate) × Debt-equity ratio]

= 0.9 × [1 + (1 - 0.35) × 0.4]

= 0 9 × 1.26

= 1.134

Hence, the equity beta of the firm is 1.134

We simply applied the above formula so that the correct value could come

And, the same is to be considered