Question

You are trying to estimate the beta of a private firm that manufactures home appliances. You have managed to obtain betas for publicly traded firms that also manufacture home appliances.
The private firm has a debt equity ratio of 25% and faces a tax rate of 40%. The publicly traded firms all have marginal tax rates of 40%, as well.
a. Estimate the beta for the private firm.
b. What concerns, if any, would you have about using betas of comparable firms?


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  • CreatedApril 15, 2015
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