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27 May, 16:37

Trucks R' Us has a market capitalization of $142 million, $78 billion in BB rated debt, and $10 billion in cash. If Trucks R' Us' equity beta is 1.68, then their underlying asset beta is closest to:

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  1. 27 May, 16:57
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    Their underlying asset beta is closest to is 1.08

    Explanation:

    According to the given data we have the following:

    Debt is given as $78 billion

    Equity is given as $142 billion

    equity beta given as 1.68

    Therefore, in order to calculate the underlying asset beta we would have to use the formula of the the equity beta for a levered firm as follows:

    betaE = beta A [1 + (Debt / Equity) ]

    1.68 = / beta A [1 + ($78 B / $142 B) ]

    1.68 = / beta A [1 + 0.5493]

    betaA = 1.68 / 1.5493

    betaA = 1.08

    Their underlying asset beta is closest to is 1.08
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Home » Business » Trucks R' Us has a market capitalization of $142 million, $78 billion in BB rated debt, and $10 billion in cash. If Trucks R' Us' equity beta is 1.68, then their underlying asset beta is closest to:
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