Fundamentals of Financial Manageme...
Solutions
Fundamentals of Financial Manageme...
UNLEVERED BETA Harley Motors has $10 million in assets, which were financed with $2 million of debt and $8 million in equity. Harley’s beta is currently 1 2, and its tax rate is 40%. Use the Hamada equation to find Harley’s unlevered beta, bU.
To identify: The unlevered beta of Company H.
Unlevered Beta:
The unlevered beta is also known as asset beta as to identify the volatility of return, the company doesn’t take into consideration of debt.
Given,
The levered beta is 1.2.
The tax rate is 40% or 0.40.
The debt is 2 million.
The equity is $8 million.
Formula to calculate the unlevered beta,
Substitute 1.2 for levered beta, 0.40 for tax rate, $2,000,000 for debt and $8,000,000 for equity.
Chapter 14 Solutions
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