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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

UNLEVERED BETA Hartman Motor has. $18 million in assets, which were financed with $6 million of debt and $12 million in equity. Hartman's beta is curruntly 1.3, and its tax rate is 35%. Use the Hamada equation to find Hartman’s unlevered beta,bu+

Summary Introduction

To determine: The unlevered beta using the Hamada equation.

Introduction:

Unlevered Beta:

The unlevered beta is a measure that helps to know how much risk is associated with a particular company in comparison to the whole market.

Explanation

Given information:

The total assets of the company are $18,000,000.

The market value of debt is $6,000,000.

The market value of equity is $12,000,000.

The current levered beta is 1.3.

The tax rate is of 35%.

Computation of the unlevered beta:

The formula to calculate the unlevered beta by the Hamada equation is:

bU=bL[1+(1T)(DE)]

Where,

  • bU is unlevered beta.
  • bL is levered beta.
  • T is the tax rate

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