Rd

问题如下：

Recently hired analyst Ulrich Schwalke used the expanded CAPM for valuing private company JNK Corporation, gathering beta estimates from comparable public firms. On a recent engagement, he found the average beta from public comparables of 1.20. The average debt ratio of the public comparables exceeded that of JNK, while tax rates were equal between the public comparables and JNK. Which statement is most correct regarding Schwalke’s estimation of JNK’s beta?

选项：

A.

Schwalke estimates JNK’s beta to be less than 1.20

B.

Schwalke estimates JNK’s beta to be 1.20

C.

Schwalke estimates JNK’s beta to be greater than 1.20

解释：

A is Correct. Observed beta estimates from public companies are levered betas. The levered beta must be adjusted to remove the effects of the debt on firm risk by applying the following unlevered beta equation.

The larger the public company debt ratio, the lower the unlevered beta result. The unlevered beta is re-levered using JNK’s debt ratio using the following levered beta equation.

As JNK’s debt ratio is below that of the public companies, the resulting levered beta will not be as high as the levered beta for the public companies.