Hamada Equation Solution

STEP 0: Pre-Calculation Summary
Formula Used
Leveraged Beta = Unleveraged Beta*(1+(1-Tax Rate)*Debt to Equity (D/E))
βL = βU*(1+(1-T%)*RD/E)
This formula uses 4 Variables
Variables Used
Leveraged Beta - Leveraged Beta is a measure of a company's risk or volatility in relation to the overall market, taking into account the firm's use of financial leverage.
Unleveraged Beta - Unleveraged Beta is a measure of a company's risk or volatility in relation to the overall market, without taking into account the firm's use of financial leverage.
Tax Rate - Tax Rate refers to the percentage at which a taxpayer's income or the value of a good or service is taxed.
Debt to Equity (D/E) - Debt to Equity (D/E) shows the proportion of equity and debt a firm that shows the ability for shareholder equity to fulfil obligations to creditors in the event of a business decline.
STEP 1: Convert Input(s) to Base Unit
Unleveraged Beta: 7 --> No Conversion Required
Tax Rate: 0.08 --> No Conversion Required
Debt to Equity (D/E): 12 --> No Conversion Required
STEP 2: Evaluate Formula
Substituting Input Values in Formula
βL = βU*(1+(1-T%)*RD/E) --> 7*(1+(1-0.08)*12)
Evaluating ... ...
βL = 84.28
STEP 3: Convert Result to Output's Unit
84.28 --> No Conversion Required
FINAL ANSWER
84.28 <-- Leveraged Beta
(Calculation completed in 00.004 seconds)

Credits

Created by Vishnu K
BMS College of Engineering (BMSCE), Bangalore
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4 Time Value of Money Calculators

Number of Periods
Go Number of Periods = ln(Future Value/Present Value)/ln(1+Rate per Period)
Hamada Equation
Go Leveraged Beta = Unleveraged Beta*(1+(1-Tax Rate)*Debt to Equity (D/E))
Doubling Time
Go Doubling Time = log10(2)/log10(1+Rate of Return/100)
Doubling Time (Continuous Compounding)
Go Doubling Time Continuous Compounding = ln(2)/(Rate of Return/100)

Hamada Equation Formula

Leveraged Beta = Unleveraged Beta*(1+(1-Tax Rate)*Debt to Equity (D/E))
βL = βU*(1+(1-T%)*RD/E)

What is Hamada Equation?

The Hamada equation, named after economist Robert S. Hamada, is a financial formula that calculates the leveraged beta of a firm by adjusting the unleveraged beta to account for the impact of financial leverage. Leveraged beta measures a company's risk, incorporating the effects of both its equity and debt. The equation considers the tax shield on interest payments associated with debt, making it particularly relevant in assessing the risk profile of leveraged firms. It is expressed as the product of the unleveraged beta and a factor that accounts for the firm's debt percentage, debt-to-equity ratio, and the corporate tax rate. The Hamada equation provides a valuable tool for analysts and investors in evaluating the risk and return characteristics of companies with varying degrees of financial leverage.

How to Calculate Hamada Equation?

Hamada Equation calculator uses Leveraged Beta = Unleveraged Beta*(1+(1-Tax Rate)*Debt to Equity (D/E)) to calculate the Leveraged Beta, The Hamada Equation formula is defined as a formula used in financial economics to estimate the leveraged beta of a leveraged firm. The leveraged beta reflects the risk of a firm's equity when it uses financial leverage (debt) to finance its operations. Leveraged Beta is denoted by βL symbol.

How to calculate Hamada Equation using this online calculator? To use this online calculator for Hamada Equation, enter Unleveraged Beta U), Tax Rate (T%) & Debt to Equity (D/E) (RD/E) and hit the calculate button. Here is how the Hamada Equation calculation can be explained with given input values -> 84.28 = 7*(1+(1-0.08)*12).

FAQ

What is Hamada Equation?
The Hamada Equation formula is defined as a formula used in financial economics to estimate the leveraged beta of a leveraged firm. The leveraged beta reflects the risk of a firm's equity when it uses financial leverage (debt) to finance its operations and is represented as βL = βU*(1+(1-T%)*RD/E) or Leveraged Beta = Unleveraged Beta*(1+(1-Tax Rate)*Debt to Equity (D/E)). Unleveraged Beta is a measure of a company's risk or volatility in relation to the overall market, without taking into account the firm's use of financial leverage, Tax Rate refers to the percentage at which a taxpayer's income or the value of a good or service is taxed & Debt to Equity (D/E) shows the proportion of equity and debt a firm that shows the ability for shareholder equity to fulfil obligations to creditors in the event of a business decline.
How to calculate Hamada Equation?
The Hamada Equation formula is defined as a formula used in financial economics to estimate the leveraged beta of a leveraged firm. The leveraged beta reflects the risk of a firm's equity when it uses financial leverage (debt) to finance its operations is calculated using Leveraged Beta = Unleveraged Beta*(1+(1-Tax Rate)*Debt to Equity (D/E)). To calculate Hamada Equation, you need Unleveraged Beta U), Tax Rate (T%) & Debt to Equity (D/E) (RD/E). With our tool, you need to enter the respective value for Unleveraged Beta, Tax Rate & Debt to Equity (D/E) and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.
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