El Capitan Foods has a capital structure of 40% debt and 60% equity, its tax rate is 35%, and its beta (leveraged) is 1.25. Based on the Hamada equation, what would the firm's beta be if it used no debt, i.e., what is its unlevered beta?
A) 0.71
B) 0.75
C) 0.79
D) 0.83
E) 0.87

Question

Quizplus · Accepted Answer

The Answer of El Capitan Foods has a capital structure of 40% debt and 60% equity, its tax rate is 35%, and its beta (leveraged) is 1.25. Based on the Hamada equation, what would the firm's beta be if it used no debt, i.e., what is its unlevered beta?
A) 0.71
B) 0.75
C) 0.79
D) 0.83
E) 0.87

El Capitan Foods Has a Capital Structure of 40% Debt