Question

Southwestern Bell, a phone company, is considering expanding its operations into the media business. The beta for the company at the end of 1995 was 0.90, and the debt to equity ratio was 1. The media business is expected to be 30% of the overall firm value in 1999, and the average beta of comparable firms is 1.20; the average debt to equity ratio for these firms is 50%. The marginal corporate tax rate is 36%.
Estimate the beta for Southwestern Bell in 1999, assuming that it maintains its current debt to equity ratio.
Estimate the beta for Southwestern Bell in 1999, assuming that it decides to finance its media operations with a debt to equity ratio of 50%.


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  • CreatedApril 15, 2015
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