The company NEW is about to be listed in the stock market. The target capital structure of this company is to have the same amout of Debt and Equity, in market value terms.
The beta debt of the company NEW is estimated to be 0.20. Knowing that the operations of the company have the same risk that the average of the sector, that the corporate tax rate is 35%, and the data in the following table are referred to other firms in the same sector; compute the beta equity for company NEW after its listing in the stock exchange.
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Company 1
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Company 2
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Company 3
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Millions of shares
|
150
|
95
|
220
|
|
Price per share
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10.00€
|
20.00€
|
4.00€
|
|
Market value of debt (M)
|
500€
|
700€
|
500€
|
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Beta debt
|
0.15
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0.20
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0.15
|
|
Beta equity
|
1.20
|
1.00
|
1.40
|