WACC and changing leverage
I get confused about these questions, and I know they should be easy. Let's say you have the following:
Equity beta = 2
Equity = 10
Debt = 10
Operating assets = 20
Therefore your OA beta is 1 (or 10/20 * 2 + 10/20 * 0 = 1).
If you leverage up and reduce equity, say to 5 equity and 15 debt, which one changes, your equity beta or your OA beta?
is it THIS: equity beta becomes such that 1 = 5/20*Be => Be = 4
or THIS: operating asset beta becomes 5/20*2 = 0.5? |