Answered

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HNT is an all-equity firm with a beta of .88. What will the firm's equity beta be if the firm switches to a debt-equity ratio of .35

Sagot :

Answer:

the firm equity beta is 1.188

Explanation:

The computation of the firm equity beta is as follows:

In the case when the firm switches to a debt-equity ratio is 0.35,

So, the proportion of equity in total capital structure is

= 100 ÷ 135

= 0.741

Now The equity beta is

=  0.88 ÷ 0.741

= 1.188

Hence, the firm equity beta is 1.188

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