BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section
BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

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.

Summary Introduction

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.

Explanation

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,

UnleveredBeta=LeveredBeta1+((1TaxRate)×DebtEquity)

Substitute 1.2 for levered beta, 0.40 for tax rate, $2,000,000 for debt and $8,000,000 for equity.

UnleveredBeta=1

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Suppose interest rates on Treasury bonds rose from 5% to 9% as a result of higher interest rates in Europe. Wha...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What is a focused value stream?

Cornerstones of Cost Management (Cornerstones Series)