Langley Longboard has 10 million in total assets with debt to capital ratio of 0
ID: 2720440 • Letter: L
Question
Langley Longboard has 10 million in total assets with debt to capital ratio of 0.40. Langley's beta is currently 1.2, and its tax rate is 25%. Use the Hamada equation to find the unlevered beta? Langley Longboard has 10 million in total assets with debt to capital ratio of 0.40. Langley's beta is currently 1.2, and its tax rate is 25%. Use the Hamada equation to find the unlevered beta? Langley Longboard has 10 million in total assets with debt to capital ratio of 0.40. Langley's beta is currently 1.2, and its tax rate is 25%. Use the Hamada equation to find the unlevered beta? Langley Longboard has 10 million in total assets with debt to capital ratio of 0.40. Langley's beta is currently 1.2, and its tax rate is 25%. Use the Hamada equation to find the unlevered beta?Explanation / Answer
Hamada Equation = Bu*(1+(1-t)*(D/E))
Unlevered beta(Bu)= Bl/(1+(1-t)*(D/E))
Where:-
Bl = Levered beta
Bu = Firm’s beta with zero debt
T = tax rate
D/E = Debt to capital ratio
Bl = 1.2
T = 25%
d/E = 0.40
Bu = 1.2/(1+(1-.25)*(0.40)) = 0.92
Unlevered beta = 0.92
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