Beta Relevering Exercise

Once an unlevered beta is calculated based on comparable companies, we have to find the levered beta for the subject firm based on the subject firm's target leverage ratio. Assume you performed the same unlevering exercise on the other two comparable companies and calculated a median unlevered beta (med_beta) as 0.777. Further assume that the subject firm's debt-to-equity ratio (debt_eq) is 1.50 and that the relevant debt beta (debt_beta) equals 0.08. Calculate the subject firm's levered beta using the Fernandez Formula.

Note that this requires you to perform a little bit of algebra from the form of the Fernandez formula in the last exercise to find the levered beta given the unlevered bea.

Calculate the subject firm's levered beta.
Consider tax rate of 40%.