Question

Harley Motors has $10 million in assets, which were financed with $2 million of debt and...

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 1.6, and its tax rate is 34%. Use the Hamada equation to find Harley’s unlevered beta, bU.

Carry out calculations to at least 4 decimal places. Enter percentages as whole numbers. Example: 3.03% should be entered as 3.03. Do not include commas or dollar signs in numerical answers.

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Answer #1

Beta levered = 1.6
Debt = 2 million
Equity = 8 million
Tax = 34%
Beta Unleverd = Beta Levered/[1+(1-Tax rate)*Debt/equity] = 1.6/[1+(1-34%)*2/8] = 1.3734

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