A.. What happens to the beta of a firm as the firm adds debt to...
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Finance
A.. What happens to the beta of a firm as the firm adds debt to its capital structure?
B. Write the Hamada formula and identify each of the variables in this formula.
- Assume you have run a regression for a company using 5 years of monthly returns and find its beta to be 1.65. The current debt-to-equity ratio for the company is 75:25, and the corporate tax rate is 39%. Compute the unlevered beta for this company.
- Now re-lever the company to a 25:75 debt-to-equity ratio and compute the new levered beta.
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