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What would be the company new leveraged beta

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Reference no: EM132955311

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 (rRF) is 5% and the market risk premium (rM - rRF) 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

Option 1: 1.0

Option 2: 1.5

Option 3: 1.6

Option 4: 1.7

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

Option 1: 0.95

Option 2: 1.0

Option 3: 1.25

Option 4: 1.35

Problem 3: Based on the information from Problem 1, 2 , what would be the company's new leveraged beta if it were to change its capital structure to 50% debt and 50% equity (D/S=1.0) using the Hamada Equation?

Option 1: 1.25

Option 2: 1.35

Option 3: 1.95

Option 4: 2.25

Reference no: EM132955311

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