Page 265 - F3 Integrated Workbook STUDENT 2019
P. 265
Business valuation
Example 9
A company has an asset beta of 0.9. It has an equity to debt ratio of 8:2 by
market values.
The tax rate is 30%.
Required:
What is the company’s equity beta?
Solution
V [1 – t]
D
ß = ß + [ß – ß ]
eu
d
eu
eg
V E
= 0.9 + 0.9 [2(1 – 0.30)/8]
= 1.058
(assuming that the debt beta is zero)
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