Section A

Titanium Forge PLC, a heavy manufacturing firm, has an equity beta of 1.40. The company's capital structure consists of 60% equity and 40% debt by market value. The corporate tax rate is 25%.

Assuming debt is risk-free (debt beta is zero), calculate the asset beta of Titanium Forge PLC to two decimal places.

The asset beta formula un-gears the equity beta to find the business risk alone. Formula: $\beta_a = \beta_e \times \frac{V_e}{V_e + V_d(1-T)}$ $V_e = 60$ $V_d = 40$ $T = 0.25$ $\beta_a = 1.40 \times \frac{60}{60 + 40(1 - 0.25)}$ $\beta_a = 1.40 \times \frac{60}{60 + 30}$ $\beta_a = 1.40 \times \frac{60}{90}$ $\beta_a = 1.40 \times 0.6667 = 0.9333$ Rounded to two decimal places: 0.93.