Answered: XYZ Corp. has a debt to equity ratio of…

XYZ Corp. has a debt to equity ratio of 0.5, an equity beta of 1.5, and its debt is risk-free. What is the beta of the firm’s operating assets?

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

See similar textbooks

Related questions

Q: Discuss whether the director’s view (Miss Kay) that issuing traded bonds will decrease the weighted…

A: Weighted average cost of capital is the average cost of procuring funds from various sources such as…

Q: Under normal circumstances, the weighted average cost of capital is used as the firm's required rate…

A: The WACC is the after-tax return that the company provides to all its stakeholders for financing its…

Q: When a firm has growth that only meets, rather than exceeds, the cost of capital, we would expect…

A: The objective of the question is to identify the correct factor that the price-earnings (P/E)…

Q: The cost of debt, rd, is normally less than rs, so rd(1-T) will normally be much less than rs.…

A: The Weighted Average Cost of Capital (WACC) is a financial metric that calculates the average cost a…

Q: a. What is the meant beta (β)? How would you interpret if β=1, β>1 and β<1?

A: Beta coefficient shows the systematic risk of the assets. The beta factor shows the systematic risk…

Q: Which of the following is true regarding a company assuming more debt? Select one: a. Assuming…

A: WHEN A COMPANY BORROWS MONEY TO BE PAID IN FUTURE WITH INTEREST IT IS KNOWN AS DEBT . MORE OF DEBT…

Q: What is the meant beta (β)? How would you interpret if β=1, β>1 and β<1? (6 marks)

A: Beta coefficient shows the systematic risk of the assets. The beta factor shows the systematic risk…

Q: . A firm, its debt, and equity have β of 1.0, 0.5, and 3.0, respectively. What is the firm’s equity…

A: The question is based on the concept of firm (asset) beta calculation and equity ratio.

Q: Based on the table below, Berwyck Industries' credit risk is most likely Total Debt/Total Capital…

A: In all given parameters, higher the cash flow to debt, ROC and EBITDA coverage ratio, lower the…

Q: tatement is true b. The above sta

A: Explanation : In simple words, fixed incomes instruments like bonds and notes pays their holders a…

Q: Select all that are true with respect to the cost of debt. Group of answer choices it is the return…

A: The cost of debt refers to the effective interest rate a company pays on its debts. It's essentially…

Q: ccording to Modigliani & Miller M Proposition II (MM Il), as a firm's debt-equity ratio decreases,…

A: MM have two proposition one is about the value of the firm and other is about the cost of capital…

Q: How would each of the following scenarios affect a firm's cost of debt, r d (l - t), t=tax rate; its…

A: Overview: Weighted average cost of capital (WACC) : Weighted average cost of capital is the mean…

Q: Consider the following two potential transactions: (i) borrow from a bank; and (ii) use the…

A: Financial leverage determines the proportion of debt capital in respect to the total capital…

Q: 3. How large is the gap between Beta(Asset) and Beta(Leverage)? What is the impact of their…

A: Beta is a metric used by shareholders to correlate the uncertainty of a securities or portfolio to…

Q: 3) Consider a firm with capital from debt, preferred stock, and common equity in its capital…

A: WACC formula: WACC=we×re+wd×rd×1-taxwherewe=weight of equitywd=weight of debtre=cost of…

Q: Which statement is true?

A: Financial Statements: These are records of the finance relating activities and positions of the…

Q: Which of the following will increase a firm's aftertax cost of debt financing? Select one: a.…

A: Cost of debt is usually computed on an after tax basis. This is because the interest expenses are…

Q: Explain the risk of investing in a company based on

A: Debt to equity ratio indicates that how much Debt is company have and how much company is having…

Q: How can you estimate the business risk of a firm?

A: Beta is the systematic risk. As a company opts to make decision to the best of interest, it is…

Q: When trying to estimate the cost of equity for a firm using the CAPM, it is possible to find the…

A: The capital asset pricing model (CAPM) is one of the methods used to compute the cost of equity…

Q: 3. Why coefficient of variation is a better measure of risk than standard deviation? 4. What is…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: ou observe that a firm?s rofit margin is below the ndustry average, while its eturn on equity and…

A: you observer the firm, the profit margin is below the industry average, while its return on equity…

Q: Which of the following statements is most correct? Other things equal, the higher the dividend…

A: Each of these statements reflects different financial concepts that can influence stock values, but…

Q: If you want to value a firm, you would discount the projected free cash flows to all debt and equity…

A: When valuing a firm, typically use the concept of discounted cash flows (DCF) to estimate its…

Q: A comparable firm (ie, same industry and similar operations as our firm) has an equity bela of 1.3…

A: The objective of the question is to calculate the asset beta for our firm based on the information…

Q: Reacher Technology has consulted with investment bankers and determined the interest rate it would…

A: WACC indicates a company's average after-tax cost of capital from every perspective, comprising…

Q: Which of the following statements is CORRECT?

A: The capital structure simply refers to the make-up of capitalization or long-term capital of a…

Q: Suppose a firm invest in proects that are much riskier than its average investments. Do you think…

A: A firm funds its investments either with shareholders' equity or debt. One of the major criteria…

Q: he level of financial risk to which a firm is exposed is dependent on the firm's: (a) tax rate (b)…

A: Financial risk can be defined as the risk of availing of finance and not being able to return it. It…

Q: A profitability measure of ROE is affected by the level of a firm’s debt. Thus, an investor must…

A: The effect of financial leverage is the difference between ROE and ROA because ROE is a measure that…

Q: A. ROE is a common ratio analysts calculate for each of a firm's segments (true or false)

A: Return on equity (ROE) refers to a ratio which shows the relationship between net income and…

Q: i. What are the assumptions underlying the CAPM? ii. What is meant by the market portfolio?iii.…

A: To adequately address your question, I'll provide a comprehensive explanation covering the…

Q: The cost of capital is affected by some factors that are under the firm’s control and some that are…

A: The objective of this question is to understand the factors that influence the cost of capital, both…

Q: Which of the following is an advantage of EV/EBITDA ratio compared with P/E ratio? A. EV/EBITDA…

A: Financial ratios are the measures that are used in the financial analysis of a corporation, and are…

Q: The beta risk of a share reflects the sensitivity of cash flow, earnings, and the share price to…

A: The beta of a stock or portfolio tells us how sensitive our holdings are to systematic risk.…

Question

XYZ Corp. has a debt to equity ratio of 0.5, an equity beta of 1.5, and its debt is risk-free. What is the beta of the firm’s operating assets?

AI-Generated Solution

AI-generated content may present inaccurate or offensive content that does not represent bartleby’s views.

Unlock instant AI solutions

Tap the button
to generate a solution

Click the button to generate
a solution

SEE SOLUTION

Similar questions

In the Merton model of corporate equity which is based on the Black Scholes formula, what is the quantity (S0/KT)? Assume that interest rates are zero (r=0) so the time value of money can be ignored, therefore S0 = ST. (a) Debt-to-equity ratio. (b) Debt-to-assets ratio. (c) Assets-to-debt ratio. (d) Assets-to-equity ratio. (e) Equity-to-assets rati
Which statement is most correct? * A. Since debt financing raises the firm’s financial risk, increasing debt ratio will increase WACC. B. Since debt financing is cheaper than equity financing, increasing debt ratio will reduce WACC. C. Increasing a firm’s debt ratio will typically reduce the marginal costs of both debt and equity financing; however, it still may raise the firm’s WACC. D. Statements a and c are correct. E. None of the above
which one is correct please confirm? Q24: In determining the cost of debt, several factors must be considered. All of the following are those factors EXCEPT ____. a. flotation costs b. the firm’s growth rate of dividends c. the firm’s before-tax cost of debt d. the firm’s tax rate
Consider two firms that are alike in every way except that Firm A has fixed rate debt in its capital structure and Firm B has variable rate debt. Which firm has riskier equity? Why?
I. The higher the financial leverage, the higher financial risk and the higher the cost of capital.II. Higher debt ratio, the higher the DFL and Required rate of return. The greater the degree of Financial Leverage, the greater the fluctuations in EPS. A• TF B• FF C• FT D• TT
Which of the following statements is correct? A. The optimal dividend policy is the one that satisfies management, not shareholders. B. The use of debt financing has no effect on earnings per share (EPS) or stock price. C. Stock price is dependent on the projected EPS and the use of debt, but not on the timing of the earnings stream. D. The riskiness of projected EPS can impact the firm's value. E. Dlvidend policy is one aspect of the firm's financial policy that is determined solely by the shareholders. Reset Selection
i. What are the assumptions underlying the CAPM? ii. What is meant by the market portfolio?iii. Sketch the capital market line and the efficient frontier when borrowing and lending rates are equal. Label the axes and important points of your sketch. iv. Do the same for the Security Market Line v. Would you expect firms with high operating leverage to have higher betas?Explain! Step by step correct answer
Which of the following statements is false?(a) The quickest way to determine whether a firm has too much debt is to calculate the debt-to-equity ratio.(b) The best guideline to determine the firm's liquidity is to calculate the current ratio.(c) From the investor's point of view, the rate of return on common equity is a good indicator of whether the firm is generating an acceptable return to the investor.( d) We can determine the operating margin by expressing net income as a percentage of total sales.

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS