Aswath Damodaran 155
Estimating Bookscape Levered Beta and Cost of Equity
! Since the debt/equity ratios used are market debt equity ratios, and the only
debt equity ratio we can compute for Bookscape is a book value debt equity
ratio, we have assumed that Bookscape is close to the industry average debt
to equity ratio of 20. 33 %.
! Using a marginal tax rate of 40 % (based upon personal income tax rates) for
Bookscape, we get a levered beta of 0. 82.
Levered beta for Bookscape = 0. 7346 ( 1 +( 1 -. 40 ) (. 2033 )) = 0. 82
! Using a riskfree rate of 4 % (US treasury bond rate) and a historical risk
premium of 4. 82 %:
Cost of Equity = 4 % + 0. 82 ( 4. 82 %) = 7. 95 %