Question

You are going to value Lauryn's Doll Company using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.8, a debt-to-equity ratio of 0.5, and a tax rate of 21 percent. Based on this information, what is the asset beta for Lauryn's? Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

          You are going to value Lauryn's Doll Company using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.8, a debt-to-equity ratio of 0.5, and a tax rate of 21 percent. Based on this information, what is the asset beta for Lauryn's?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

You are going to value Lauryn's Doll Company using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.8, a debt-to-equity ratio of 0.5, and a tax rate of 21 percent. Based on this information, what is the asset beta for Lauryn's?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

Added by Lynn J.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Madhur L

12/20/2023

Step 1

8 / (1 + (1 - 0.21) * 0.5) Unlevered Beta = 1.8 / (1 + 0.79 * 0.5) Unlevered Beta = 1.8 / (1 + 0.395) Unlevered Beta = 1.8 / 1.395 Unlevered Beta = 1.288 Show more…

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You are going to value Lauryn's Doll Company using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.8, a debt-to-equity ratio of 0.5, and a tax rate of 21 percent. Based on this information, what is the asset beta for Lauryn's? Lauryn's asset beta = Equity Beta * (1 + (1 - Tax Rate) * (Debt-to-Equity Ratio)) Lauryn's asset beta = 1.8 * (1 + (1 - 0.21) * 0.5) Lauryn's asset beta = 1.8 * (1 + 0.79 * 0.5) Lauryn's asset beta = 1.8 * (1 + 0.395) Lauryn's asset beta = 1.8 * 1.395 Lauryn's asset beta = 2.511 Therefore, the asset beta for Lauryn's Doll Company is 2.51.