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Levered Beta

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I need to see intermediate steps and formulas.

California Real Estate, Inc. currently is an all-equity firm, the current expected rate of return on the firm's equity is 20%, risk free rate is 5% and the market risk premium is 10%. The firm is considering a capital structure change from zero debt to a debt-to-equity ratio .5, given the corporate tax rate is 50%, what is the equity Beta under the proposed change?

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Solution Summary

The solution explains how to calculate the equity beta after a change in the capital structure.

Solution Preview

Using the CAPM equation, we first calculate the exisiting beta which will be unlevered beta
Rate of return = Rf + ...

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