XYX Inc is evaluating a project. XYX intends to use 20% debt in funding the project. XYX identifies 5 comparable companies with the following “equity betas” and “debt/equity” ratios. While the comparable companies have varying marginal tax rates XYZ’s marginal tax rate is 25%.

XYZ’s levered beta for the project (or project beta) is closest to:

A) 1.35

B) 1.24

C) 1.55

D) 1.47

Company |Equity BetaDE Ratio Marginal Tax Rate 1.38 1.65 2.11 1.54 1.83 0.25 0.55 0.75 0.50 0.60 25% 30% 35% 30% 30%