provide an example how can government tax cuts change a beta of a company. (beta=1.5)
provide an example how can government tax cuts change a beta of a company. (beta=1.5)
Homework Answers
A beta is the volatility of the company's stock in relation to the market conditions. A company with higher cost of debt has a higher beta since the risk is more. A reduction in tax rates will reduce the tax deduction available out of interest costs and hence increasing the cost of debt. This will increase the levered beta of a firm.
If the beta is 1.5, a tax cut will increase the beta to a value greater than 1.5
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provide an example how can government tax cuts change a beta of a company. (beta=1.5)
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