Chrysler the automotive manufacturer had a beta of 1 05 in
Chrysler, the automotive manufacturer, had a beta of 1.05 in 1995. It had $13 billion in debt outstanding in that year and 355 million shares trading at $50 per share. The firm had a cash balance of $8 billion at the end of 1995. The marginal tax rate was 36%.
a. Estimate the unlevered beta of the firm.
b. Estimate the effect of paying out a special dividend of $5 billion on this unlevered beta.
c. Estimate the beta for Chrysler after the special dividend.
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