Question：Slick Inc, a toy manufacturer, has diversified into a number of different activities and has a beta of 1.1. If the company divested itself of all these extra activities and concentrated solely on its core business, its beta - based on the observed beta of other toy manufacturers with similar financial structures - would be 1.3. Slick Inc's Debt/Equity ratio is 0.40 and its tax rate is 30%.
　　What would be Slick Inc's business risk if it divested itself of all extra activities (to 2 decimal places)?
　　________
　　The correct answer is: 1.02
　　Use the formula:
　　bu = bL /[1 + (D/E)(1 - t)]
　　= 1.3 / [1 + (0.40 x 0.70)]
　　= 1.02
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