Question: Aristo Cip is using data concerning a publicly traded comparable to determine the asset beta for a privately traded company. The beta of the publicly

Aristo Cip is using data concerning a publicly traded comparable to determine

the asset beta for a privately traded company. The beta of the publicly traded

stock is 1.8 while debt-to-equity ratios and marginal tax rates are 0.4 and 30%,

respectively. The privately traded corporation has a D/E ratio of 0.7 and a marginal

tax rate of 25%.

Using the pure play method, the beta used to estimate the cost of capital for a project undertaken by the private entity having an identical risk and financing structure as its company is closest to:

A. 1.41.

B. 2.10.

C. 2.14.

D. 1.24

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