Reading 22 Questions:“Firm: As D/E increase, risk increases. Because Equity Beta = (1+D/E)* Firm Beta” Why we judge risk by equity Beta not Firm Beta?
because shareholders hold equity positions?
As we consider firm’s risk, we only means the risk of the shareholders?
As we consider firm’s risk, we only mean the risk of the shareholders?
I havent looked at this question. However, consider this scenario. Same firm 1. 99% debt 2. 0% debt If only considering asset beta, you would think each scenario would have equal risk. Obviously, it doesn’t. Capital structure definitely plays a role in a firm’s risk.