hard · Principles of Finance risk-return-portfolio
A firm's levered equity beta is 1.2 when its Debt/Equity ratio is 0.6 and the marginal tax rate is 35%. A new tax law raises the marginal tax rate to 45%, and the firm simultaneously plans to increase its Debt/Equity ratio to 1.0.
Using the Hamada equation, what will the firm's new equity beta be once both changes take effect?
- 1.34
- 1.40
- 1.42
- 1.50
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