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Memphic Memphic
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6 years ago
Your firm is planning to invest in a new electrostatic power generation system.  Electrostat Inc is a firm that specializes in this business.  Electrostat has a stock price of $25 per share with 16 million shares outstanding.  Electrostat's equity beta is 1.18.  It also has $220 million in debt outstanding with a debt beta of 0.08.  Your estimate of the asset beta for electrostatic power generators is closest to:
A) 0.76
B) 0.79
C) 0.93
D) 1.10
Textbook 
Corporate Finance: The Core

Corporate Finance: The Core


Edition: 4th
Authors:
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#1
6 years ago
B
Explanation:  B) βU =  βE +  βD =   × 1.18 +   × 0.08 = 0.789677
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