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

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pedrocarratore

Answer:

0.9811

Step-by-step explanation:

Hartman Motors' data:

Debt (D) = $6 million

Equity (E) = $12 million

Tax rate (T) = 0.35

Levered beta (βL) = 1.3

According to the Hamada equation:

[tex]\beta_L =\beta_U[1+(1-T)\frac{D}{E}][/tex]

Applying the given data:

[tex]1.3 =\beta_U[1+(1-0.35)\frac{6}{12}]\\\beta_U=0.9811[/tex]

Hartman’s unlevered beta is 0.9811.

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