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The Beta of an All-Equity Firm Is 1

Question 62

Multiple Choice

The beta of an all-equity firm is 1.2. Suppose the firm changes its capital structure to 50 percent debt and 50 percent equity using 8 percent debt financing. What is the equity beta of the levered firm? The beta of debt is 0.2. (Assume no taxes.)


A) 1.2
B) 2.2
C) 2.4
D) 1.7

Correct Answer:

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