How do you calculate asset beta?
The question states:
The Template Corporation has an equity beta of 1.2 and a debt of .8. The firm's market value debt to equity ratio is .6. Template has a zero tax rate. What is the asset beta?
The answer is " .8(.6/1.6) +1.2(1/1.16)= 1.05
Where does the numerator 1 come from?
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Seriously- I am so confused too.
if debt to equity is .6/1 then debt to debt+equity is .6/1.6. That would give you the weight for debt, and 1-(.6/1.6) is your weight for equity.
Isn't the Debt to Equity ratio of .6 already a ratio though?
1-(.6/1.6)? Is that the same as (1/1.16) equity beta portion of the formula?
You serious man? Do the math for yourself and see.
This brings to mind Eddie's post a couple of days ago about how people nowadays just learn one method for mathematics and have no idea about how numbers actually work...
Also, why you are asking WSO to do your finance homework for you?
D/E=.6 then D/V = .6/1.6
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