Hartman Motors has $13 million in assets, which were financed with $5

Finance Dec 02, 2020

Hartman Motors has $13 million in assets, which were financed with $5.2 million of debt and $7.8 million in equity. Hartman's beta is currently 1.35, 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.

Expert Solution

The unlevered beta is computed as shown below:

= Levered beta / [ (1 + [ (1 - tax rate ) x (debt / equity) ] ]

= 1.35 / [ (1 + [ (1 - 0.35) x $ 5.2 million / $ 7.8 million) ] ]

= 1.35 / [ (1 + 0.433333333) ]

= 0.94 Approximately

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