Chiquita Foods has a capital structure of 20% debt and 80% equity, its tax rate is 35%, and its beta (leveraged) is 1.25. Based onthe Hamada equation, what would the firm's beta be if it used no debt, i.e., what is its unlevered beta?0.981.030.821.08

Given: Levered beta = 1.25 Tax rate = 35%

Answered: Chiquita Foods has a capital structure…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Chiquita Foods has a capital structure of 20% debt and 80% equity, its tax rate is 35%, and its beta (leveraged) is 1.25. Based on the Hamada equation, what would the firm's beta be if it used no debt, i.e., what is its unlevered beta? 0.98 1.03 0.82 1.08