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2. You have been asked to estimate the beta for a large South Korean company, with large
holdings in steel and financial services. You have collected the average betas for global
companies in each of the sector, as well as the average debt-to—equity ratios in each sector: Sector Average Beta Average D|E ratio
Steel 1.18 30% Financial services 1.14 70%
The average tax rate is 70%.
In the most recent period the company you are analyzing earned 70% of its operating income from
steel and 30% from financial services. It also had a debt-t0 equity ratio of 150% and a tax rate of
a. Estimate the beta of the company 2.13
b. If the Korean government bond rate in USD is 12%, Korean rating is BBB and Korean
equities are twice as volatile as Korean bonds, estimate the:
i. Risk-free rate 10%
ii. Market risk premium 4%
iii. Cost of equity for this company valued in USD. 18.53%

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For This Question First We will Need to Find the Beta of Levered Firms for Both Sectors Answer-A (i) Sector-Steel: Un-Levered... View the full answer

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