You are analyzing Tiffany’s, an upscale retailer, and find that the regression estimate of the firm’s beta is 0.75; the standard error for the beta estimate is 0.50. You also note that the average unlevered beta of comparable specialty retailing firSSms is 1.15.
a. If Tiffany’s has a debt/equity ratio of 20%, estimate the beta for the company based upon comparable firms. (The tax rate is 40%)
b. Estimate a range for the beta from the regression.
c. How would you reconcile the two estimates? Which one would you use in your analysis?