Question

Find the bottom-up beta of a private company with debt-to-equity ratio of 25% and tax rate of 40% using the information in the table below. Tax rate is 40% for all the firms in the table.

Firm	Levered Beta	Debt	MV Equity
Black & Decker	1.8	3,400	4,000
Fedders	1.3	25	250
Maytag	1.5	1500	2,250
National	0.85	350	600
Whirlpool	1.1	1,560	4,000

Select one:

a. Beta = 1.3265

b. Beta = 0.9894

c. Beta = 1.15

Answer 1

Unlevered beta=levered beta/(1+(1-tax rate)*Debt/Equity)

Unlevered beta for Black and Decker=1.8/(1+(1-40%)*3400/4000)=1.19205298

Unlevered beta for Fedders=1.3/(1+(1-40%)*25/250)=1.226415094340

Unlevered beta for Maytag=1.5/(1+(1-40%)*1500/2250)=1.071429

Unlevered beta for National=0.85/(1+(1-40%)*350/600)=0.6296296

Unlevered beta for Whirlpool=1.1/(1+(1-40%)*1560/4000)=0.8914100

Average unlevered beta=1.002187

Bottom up beta=average unlevered beta*(1+(1-tax rate)*Debt/Equity)=1.002187*(1+(1-40%)*25%)=1.15