Consider a company with total debt outstanding of 6 billion dollars, and cost of debt of 5%. The debt interest payments are perpetual, and have a beta of 0. The firm's perpetual EBIT is 4 billion dollars, its assets are fully depreciated, and the tax rate is 30%. The current value of company equity is 30 billion dollars. The firm's next cash flow will occur at the end of the year. The expected market return every year is 8%.

Compute the equity beta for this firm. If there is not enough information to calculate this value, please explain why, and describe the information you would need in order to calculate this value.

Answer rating: 100% (QA)

To compute the equity beta for the firm we can use the following fo... View the full answer