moneyyfletcher
17.04.2020 •
Business
Suppose that the operations of firm P closely resemble those of project X. The stock beta of firm P is 2.23 and its D/V ratio is 0.4. The marginal tax rate is 36%. The debt is assumed to be risk-free (i.e., debt beta is 0).
Project X is proposed to be financed by 50% equity and 50% debt, where the debt is assumed to be risk-free.
Calculate the beta to be used for determining the required rate of return on equity in the project.
a. 2.25
b. 2.55
c. 1.75
d. 1.56
e. 2.75
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