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?

Answer rating: 100% (QA)

Heres how to calculate the expected new equity beta for Penguin Publishing under the proposed capita... View the full answer