That is 'Hamada Equation' Information:
Hamada equation - a fundamental analytical method of the analysis of cost of the capital of firm as it uses an additional financial leverage and as it concerns full riskiness of firm. The measure is used to summarize effects which this type of levers has on the cost of the capital of firm (over a cost of the capital as though the firm had no debt). Equation:
B (L) = B (U) [1 + (1-T) (D/E)]
- B (L) = the lifted beta
- B (U) = not lifted beta
- T = tax rate
- D/E = debt to the action relation
2019 - Hamada equation
Hamada equation, Information - 2019
DESTRUCTION of 'Hamada equation' Information:
The equation catches up with the theorem of the Modigliani-miller on structure of the capital and expands the analysis to define amount of effect of a financial leverage in firm. A beta - a measure of variability or system risk of rather full market. Hamada equation, then, shows how the beta of firm changes with levers.
The beta coefficient is higher, the above the risk contacted firm. For example, tell that the firm has a debt to the stock 0.60 relation, a tax rate of 33 percent's and not lifted beta 0.75. The coefficient of Hamada would be 0.75 [1 + (1-0.33) (0.60], or 1.05. It means that the financial leverage for this firm increases full risk by 0.30 (1.05 - 0.75), or 40 percent's .
Who such Robert of Hamad?
Robert of Hamad - the teacher of finance at Business school of the Stand of the Chicago university. Professor Amada served as the dean of business school from 1993-2001 and taught at the Chicago university with 1966. His equation was published in his article, "Effect of Structure of the capital of Firm on System Risk of Ordinary actions" in the Magazine of Finance in May, 1972.
Warning About Refusal! The information on our website may be out-of-date and not official. For more information, please visit the Bank's official website.
For credit, insurance and account opening issues, please contact the Bank's consultant by phone. Thank you for using our site.
If we don 't have accurate information or it is out-of-date, please notify us by E-mail.