Based on the following information about a private company and its publicly traded competitor:Using the pure-play method, the estimated equity beta for the private company is closest to:
Inferring the asset beta for the public company: unlevered beta = 1.75/[1 + (1 - 0.35) (0.90)] = 1.104. Relevering to reflect the target debt ratio of the private firm: levered beta = 1.104 x [1 + (1 - 0.30) (1.00)] = 1.877.
Using the pure-play method, the estimated equity beta for the private company is closest to:
