Question: Penguin Publishing is exploring adding more debt to its capital structure. Currently, the company is 80% equity financed and 20% debt financed. Additionally, its equity

Penguin Publishing is exploring adding more debt to its capital structure. Currently, the company is 80% equity financed and 20% debt financed. Additionally, its equity beta is 1.4 and debt beta is 0.1. Their CEO wants to change to 63% equity and the rest will be debt. The CEO plans to maintain a constant D/E ratio for the long term. If they do not expect their debt beta to change, what do you expect their equity beta to be under the new capital structure?

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