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If they decide to modify the companys capital structure so

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In this question,the market risk premium is 6% and the risk free rate is 3%. You are interested in Patatras Inc., a firm currently all equity financed but which can borrow as much as it wants at 3%. The company's current beta is 1.37. Patatras' management team is considering issuing some debt and wonders what effect this decision would have on the company's beta. If they decide to modify the company's capital structure so that it has 20% debt, what will be Patatras' beta, rounded to 2 decimal places? The firm's cost of equity is 11.2%. Assume a tax rate of 30%.

Reference no: EM13480118

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