Question

Hartman Motors has $20 million in assets, which were financed with $6 million of debt and $14 million in equity. Hartman's beta is currently 1.85, and its tax rate is 35%. Use the Hamada equation to find Hartman's unlevered beta, b_U. Do not round intermediate calculations. Round your answer to two decimal places.

b_U =

Answer 1

​​​​From the Hamada equation, = u {1+ (1 - T) (D/E) }

We can calculate u  as u = /{ 1 + (1 - T) (D/E) }

u = 1.85 / {1 + (1 - 0.35) ($6,000,000 / $14,000,000) }

u = 1.85 / { 1 + (0.65) (0.4285)

u = 1.85 / { 1 + (0.2785) }

u = 1.85 / 1.2785

u = 1.447

(Note: T = Tax

D = debt, E = equity

u = Unlevered beta

= beta)