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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
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
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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.
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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