Reference no: EM132783444

Ranbaxy Ltd is a well-known company in the pharmaceutical industry. Based on the monthly data for the last years from 1 January, 1999 to December 31, 2002, its beta appears equal to 1.75. During this period, the company has deployed an average debt-equity ratio of around 40 per cent in its capital structure. Looking at the challenges being posed by the new patent regime, the company has realised the need for making more investment research and development activities. For meeting its funding requirement, the company is planning to raise additional funds from the market. The chief finance manager, CFO of the company, is exploring the option of raising the debt level to 60 per cent. However, he is concerned that a rising additional debt may increase the risk proposition of the company, as measured by beta. Calculate the beta of the firm at 50 per cent and 60 per cent debt level and comment upon the increase in the risk level.