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Calculate octane unlevered beta

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For this and the next 2 questions: Octane Music currently has $40 million of debt at 9% interest rate. Its stock price is $40 per share with 4 million shares outstanding. Octane is a zero-growth firm. The company's EBIT is $29.866 million, tax rate is 40%, market risk premium is 5%, risk free interest rate is 6%. Octane is considering increasing its debt ratio to 40% (based on market values) and buying back some shares with the extra borrowed funds. Interest rate on the new debt will be 10%. Octane's beta is currently 2. Calculate Octane's unlevered beta (use market value debt-to-equity ratio)

Reference no: EM132813767

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