Question: Chrysler, the automotive manufacturer, had a beta of 1.05 in 1995. It had $ 13 billion in debt outstanding in that year, and 355 million shares trading at $ 50 per share. The firm had a cash balance of $ 8 billion at the end of 1995. The marginal tax rate was 36%.
a. Estimate the unlevered beta of the firm.
b. Estimate the effect of paying out a special dividend of $ 5 billion on this unlevered beta. c. Estimate the beta for Chrysler after the special dividend.