Suppose that firm x is considering entering a business, Financial Management

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Suppose that firm x is considering entering a business

Suppose that firm X is considering entering a business similar to firm Y, a relatively small firm in a single line of business. Firm Y has a beta of 0.80. Debt to Equity ratios and marginal tax rates for firm X and firm Y are shown below.

Firm Debt/Equity Ratio Tax Rate

X 1.6 26%

Y 0.6 37%

What beta would be appropriate for firm X to use in discounting the cash flows of the proposed project?

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Financial Management: Suppose that firm x is considering entering a business

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Financial Management: Suppose that firm x is considering entering a business

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