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Market Beta Assignment

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February 20th, 2020

A firm is currently financed with $400 of debt and $600 of equity. The expected return on the debt is 5%. The market beta of the firmʹs equity is 1.2; the risk -free rate is 2%; and the equity premium is 6%. The firm pays taxes at the marginal rate of 40%.         The firm is considering increasing its debt to $600 and using the funds to repurchase some of its stock. This is likely to change the expected return on debt to 7%. Using same WACC above, what will the new market beta of the firmʹs equity be? Round your answer to the nearest tenth.

a.1.0

b. Not determinable

c. 1.2

d. 1.4 Get Finance homework help today

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