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Hi sir, I’m having trouble with figuring out what ratios of debt and equity to use in certain questions. For example, if the company has a debt/debt+equity ratio of 25% what ratios would we use for debt and equity in the asset beta formula?
If the total capital (equity + debt) is 100, then debt is 25% and therefore equity is 75%.
Therefore in the asset beta formula Ve = 75 and Vd = 25.
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