(15-2). Unlevered Beta Counts Accounting’s beta is 1.15 and its tax rate is 40%. If it...

Question

Question

(15-2). Unlevered Beta
Counts Accounting’s beta is 1.15 and its tax rate is 40%. If it is financed with 20% debt, what is its unlevered beta?

bL		1.15
Tax rate		40%
wd		20%

Equity ratio		80.00%
bU

business finance

Answer 1

Answer #1

Calculate the Unlevered beta as follows:

Unlvered beta(bU) = Beta levered(bL)/(1+((1-tax rate)*(Debt/Equity)))

= 1.15/(1+((1-40%)*(20%/80%)

= 1.15/(1+15%)

= 1.15/1.15

= 1

Therefore unlvered beta is 1.

Answer 2

Similar Homework Help Questions

Unlevered Beta Counts Accounting has a beta of 1.55. The tax rate is 40%, and Counts...

Unlevered Beta Counts Accounting has a beta of 1.55. The tax rate is 40%, and Counts is financed with 50% debt. What is Counts' unlevered beta? Do not round intermediate calculations. Round your answer to two decimal places.
Counts Accounting has a beta of 1.55. The tax rate is 40%, and Counts is financed...

Counts Accounting has a beta of 1.55. The tax rate is 40%, and Counts is financed with 45% debt. What is Counts' unlevered beta? Do not round intermediate calculations. Round your answer to two decimal places.
UNLEVERED BETA Hartman Motors has $12 million in assets, which were financed with $3.6 million of...

UNLEVERED BETA Hartman Motors has $12 million in assets, which were financed with $3.6 million of debt and $8.4 million in equity. Hartman's beta is currently 1.15, and its tax rate is 35%. Use the Hamada equation to find Hartman's unlevered beta, bU. Do not round intermediate calculations. Round your answer to two decimal places. bU = ______

Hamada equation Original % debt in capital structure, Wd Original % common equity in capital structure,...

Hamada equation Original % debt in capital structure, Wd Original % common equity in capital structure, wc Risk-free rate, IRE Market risk premium, RPM Tax rate, T Firm's cost of equity, rs 20.00% 80.00% 6.00% 7.00% 40.00% 16.00% Formulas Calculation of firm's current beta: Firm's current beta, bL #N/A Calculation of firm's unlevered beta: Firm's unlevered beta, bu #N/A New % of debt in capital structure, Wd New New % of common equity in capital structure, Wc New 50.00% 50.00%...
Visscher Inc. has a capital structure of 55% debt and 45% equity, its tax rate is...

Visscher Inc. has a capital structure of 55% debt and 45% equity, its tax rate is 25%, and its levered beta is 1.15. Based on the Hamada equation, what would the firm's beta be if it used no debt, i.e., what is its unlevered beta, bu? O 0.6000 0.7500 O 0.8750 0.9000 1.0000
UNLEVERED BETA Hartman Motors has $9 million in assets, which were financed with $5.4 million of...

UNLEVERED BETA Hartman Motors has $9 million in assets, which were financed with $5.4 million of debt and $3.6 million in equity. Hartman's beta is currently 1.7, and its tax rate is 30%. Use the Hamada equation to find Hartman's unlevered beta, bu. Do not round intermediate calculations. Round your answer to two decimal places. by =

UNLEVERED BETA Hartman Motors has $14 million in assets, which were financed with $2.8 million of...

UNLEVERED BETA Hartman Motors has $14 million in assets, which were financed with $2.8 million of debt and $11.2 million in equity. Hartman's beta is currently 1.55, and its tax rate is 35%. Use the Hamada equation to find Hartman's unlevered beta, by. Do not round intermediate calculations. Round your answer to two decimal places bu=
UNLEVERED BETA Hartman Motors has $9 million in assets, which were financed with $1.8 million of...

UNLEVERED BETA Hartman Motors has $9 million in assets, which were financed with $1.8 million of debt and $7.2 million in equity. Hartman's beta is currently 1.05, and its tax rate is 35%. Use the Hamada equation to find Hartman's unlevered beta, bu. Do not round intermediate calculations. Round your answer to two decimal places.
El Capitan Foods has a capital structure of 36% debt and 64% equity, its tax rate...

El Capitan Foods has a capital structure of 36% debt and 64% equity, its tax rate is 35%, and its beta (leveraged) is 1.40. Based on the Hamada equation, what would the firm's beta be if it used no debt, i.e., what is its unlevered beta, bU? a. 0.88 b. 0.80 c. 1.15 d. 1.03 e. 1.29

El Capitan Foods has a capital structure of 36% debt and 64% equity, its tax rate...

El Capitan Foods has a capital structure of 36% debt and 64% equity, its tax rate is 35%, and its beta (leveraged) is 1.40. Based on the Hamada equation, what would the firm's beta be if it used no debt, i.e., what is its unlevered beta, bU? a. 1.29 b. 0.88 c. 1.15 d. 1.03 e. 0.80