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Find the firm current leveraged beta using the capm

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Reference no: EM132792750

Problem 1: A company is estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free rate (r) is 5% and the market risk premium (r - r) is 6%. Currently the company's cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firm's current leveraged beta using the CAPM

a. 1.0

b. 1.5

c. 1.6

d. 1.7

Problem 2: Based on the information from problem 1, find the firm's unleveraged beta using the Hamada Equation

a. 0.95

b. 1.0

c. 1.25

d. 1.35

Reference no: EM132792750

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