# 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?

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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