EZCUBE Corp. is 45% financed with long-term bonds and 55% with common equity. Th
ID: 2711317 • Letter: E
Question
EZCUBE Corp. is 45% financed with long-term bonds and 55% with common equity. The debt securities have a beta of 0.29. The company’s equity beta is 1.11. What is EZCUBE’s asset beta? EZCUBE Corp. is 45% financed with long-term bonds and 55% with common equity. The debt securities have a beta of 0.29. The company’s equity beta is 1.11. What is EZCUBE’s asset beta? EZCUBE Corp. is 45% financed with long-term bonds and 55% with common equity. The debt securities have a beta of 0.29. The company’s equity beta is 1.11. What is EZCUBE’s asset beta?Explanation / Answer
Asset beta will be the weighted average beta of debt and equity.
Weighted average beta = Weight of debt x debt beta + weight of equity x equity beta
= 0.45 x0.29 + 0.55x1.11
= 0.741