Estimate the new levered beta for laplace steel

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You have been asked to estimate a beta for LaPlace Steel, a mid-sized steel company.

- 30 million shares outstanding trading at $ 10 a share

- $ 250 million in debt outstanding

- $ 200 million in cash and marketable securities (treasury bills and commercial paper).

The average beta across steel companies is 1.2; the average D/E for these companies is 30% and the corporate tax rate is 40%.

A) Now assume that LaPlace Steel announces that it will pay a special cash dividend of $150 million to its stockholders and use the remaining cash to enter the chemical business. If the unlevered beta for chemical companies is 0.90, estimate the new levered beta for LaPlace Steel.

Reference no: EM131975252

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