A few publicly listed home appliance manufacturing companies have the following beta, debt, and equity:   Company Beta Debt Equity Apple 1.4 ₹     2,500 ₹       3,000 Pear 1.2 ₹             5 ₹           200 Grape 1.2 ₹        540 ₹       2,250 Tomato 0.7 ₹             8 ₹           300 Watermelon 1.5 ₹     2,900 ₹       4,000   Calculate the beta of the industry keeping in mind the publicly listed sector only, with a debt equity ratio of 25%. (Assume a Tax Rate for all companies at 35%) (Hint- One way is to compute the unlevered betas of each of the five firms and then average these unlevered betas and substitute it as the unlevered beta for a private company)

Survey of Accounting (Accounting I)
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ISBN:9781305961883
Author:Carl Warren
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Chapter12: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 12.4E
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A few publicly listed home appliance manufacturing companies have the following beta, debt, and equity:

 

Company

Beta

Debt

Equity

Apple

1.4

₹     2,500

₹       3,000

Pear

1.2

₹             5

₹           200

Grape

1.2

₹        540

₹       2,250

Tomato

0.7

₹             8

₹           300

Watermelon

1.5

₹     2,900

₹       4,000

 

Calculate the beta of the industry keeping in mind the publicly listed sector only, with a debt equity ratio of 25%. (Assume a Tax Rate for all companies at 35%) (Hint- One way is to compute the unlevered betas of each of the five firms and then average these

unlevered betas and substitute it as the unlevered beta for a private company)

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