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Question: You need to estimate the equity beta for Golden Chemical, Inc. Golden's debt-to-asset ratio is 20%, and its debt beta is 0.25. The following table shows the betas, debt betas and debt-to-equity ratios for three comparable chemical firms (all taken from finance.yahoo.com). Assume the tax rate is 40% for all four firms. Please show your work and clearly label your answers.

Company	Beta	D/E Ratio	Debt Beta
Eastman Chemical	1.45	.75	.3
Celanese Corp	1.28	.82	.3
Dow Chemical	2.56	.96	.3

1. Assuming debt is risk-free, use the information given above to estimate the unlevered equity betas of each of these companies.

2. Assuming debt is risk-free, what is your estimate of Golden Chemical's levered equity beta?

3. The current risk-free rate is 2.4% and the current market risk premium is 7.53%. If Golden's before-tax cost of debt is 6.8% and it has no preferred stock in its capital structure, what is Golden's weighted average cost of capital?

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Category:- Basic Finance
Reference No.:- M92595765

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