Finance-If a firm had a debt outstanding of $ 1.7 billion and Market Value of Equity

| January 30, 2017

Question
If a firm had a debt outstanding of $ 1.7 billion and Market Value of Equity of $ 1.50 billion and corporate Marginal Tax Rate of 36%. The current beta is 0.95. The unlevered Beta=Levered Beta/(1+(1-Tax Rate)*(Debt/Equity))=0.95/(1+(1-36%)*(1.7/1.5))=0.55062. How much of the Risk in the company can be attributed to business risk and how much to financial leverage risk?

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