What is the re-levered beta of the company

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Question - Base case scenario: Cora company has a capital structure containing 22% debt and 78% equity. The company's debt currently has a yield to maturity of 5%. The risk-free rate is 4% and long-term market return in 10%. Cora Company's beta was estimated at 1.1 and tax rate is 30%.

Scenario A: The company is contemplating a change in capital structure to 42% debt and 58% equity. Pre-tax cost of debt would rise to 6% (because there is more debt outstanding).

What is the re-levered beta of the company under Scenario A (with 42% debt)?

a. 1.3843

b. 1.1000

c. 0.9186

d. None of the above

Reference no: EM133179485

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