If sterlings debt-to-equity capitalization ratio is 20 and


The CFO of Sterling Chemical is interested in evaluating the cost of equity capital for his firm. However, Sterling uses very little debt in its capital structure (the firm's debt-to-equity capitalization ratio is only 20%), while larger chemical firms use substantially higher amounts of debt. The following table shows the levered equity betas, debt-to-equity betas, and debt betas for three of the largest chemical firms. Company Name Levered Equity Betas Deb/Equity capitalizacion Assumed Debt betas Eastman Chemical Co. 2.0200 42.69% 0.30 Celanese Corp. 2.6300 82.93% 0.30 Dow Chemical Company 2.5000 29.07% 0.30 a. Use the information given above to estimate the unlevered equity betas of each of these companies. b. If Sterling's debt-to-equity capitalization ratio is .20 and its debt beta is also .30, what is your estimate of the firm's equity beta?

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Finance Basics: If sterlings debt-to-equity capitalization ratio is 20 and
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