Solved: What is new beta and return on equity, Corporate Finance

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What is new beta and return on equity

Assignment:

Justin's Jerky (JJ) has a no debt and a beta of 1.20. The risk-free rate is 4.5% and the market risk premium is 6.5%. JJ's tax rate is 35%. JJ wants to change its capital structure to 20% debt and 80% equity. What will be its new beta and its new return on equity (rs)?

a. 1.25, 12.0

b. 1.30, 12.7

c. 1.32, 13.1

d. 1.40, 13.6

e. 1.44, 13.8

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