EZCUBE Corp. is 45% financed with long-term bonds and 55% with common equity. Th

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

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