Estimate the beta of the new debt

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As of September 2012, Google (GOOG) had no debt. Suppose the firm's managers are considering issuing zero-coupon debt due in 16 months with a face value of $162.1 billion, and using the proceeds to pay a special dividend. Google currently has a market value of $231.9 billion and the risk-free rate is 0.28%.

Using an implied volatility σ=38.60%, answer the following:

Problem a. If Google's current equity beta is 1.24, estimate Google's equity beta after the debt is issued.

Problem b. Estimate the beta of the new debt.

Reference no: EM132946572

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