XYZ Corporation, a publicly traded company, operates in a sector with an average unlevered beta of 1.2. The company currently has a levered beta of 1.6, a debt - to -equity ratio of 0.5, and a corporate tax rate of 30%. XYZ Co structure by increasing its debt level, which will alter its debt-to- equity ratio to 0.8. Assuming the business risk remains constant, estimate XYZ Corporation's new levered beta after the change in the capital structure.
XYZ Corporation, a publicly traded company, operates in a sector with an average unlevered beta of 1.2. The company currently has a levered beta of 1.6, a debt - to -equity ratio of 0.5, and a corporate tax rate of 30%. XYZ Co structure by increasing its debt level, which will alter its debt-to- equity ratio to 0.8. Assuming the business risk remains constant, estimate XYZ Corporation's new levered beta after the change in the 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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Transcribed Image Text:XYZ Corporation, a publicly traded company, operates in a sector with an average unlevered beta of 1.2.
The company currently has a levered beta of 1.6, a debt - to -equity ratio of 0.5, and a corporate tax rate
of 30%. XYZ Co structure by increasing its debt level, which will alter its debt-to- equity ratio to 0.8.
Assuming the business risk remains constant, estimate XYZ Corporation's new levered beta after the
change in the capital structure.
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