Alpha currently has a capital structure of 50 percent debt and 50 percent equity, but is considering a new product that will be produced and marketed by a separate division. The new division will have a capital structure of 30 percent debt and 70 percent equity. Alpha has a current beta of 1, but is not sure what the beta for the new division will be. AMX is a firm that produces a product similar to the product under consideration by Alpha. AMX has a beta of 1.6, a capital structure of 40 percent debt and 60 percent equity and a marginal tax rate of 40 percent. If Alpha’s tax rate is 30 percent, estimate the levered beta for the new product division.

Answer rating: 100% (QA)

Levered beta 1 1 Tc DE betau Levered beta 1 1 03 0... View the full answer