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How much will the levered beta be after change

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Reference no: EM133073419

Lomax Inc. has 100 million shares outstanding, trading at $8/share and has no debt outstanding. The firm currently has a cost of equity of 9% and is thinking about borrowing $200 million at 5%(pre-tax) and buying back shares.

Estimate how much will the levered beta be after this change. The risk free rate is 3% and the ERP is 5%. The marginal tax rate is 20%

A. 0.95

B. 1.20

C.1.39

D.1.44

E.1.52

Reference no: EM133073419

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