Hamada's equation
Description
In corporate finance, Hamada’s equation, is used to separate the financial risk of a levered firm from its business risk. Hamada’s equation relates the beta of a levered firm (a firm financed by both debt and equity) to that of its unlevered (i.e., a firm which has no debt) counterpart.
Related formulasVariables
βL | Levered beta (dimensionless) |
βu | Unlevered beta (dimensionless) |
T | The tax rate (dimensionless) |
ϕ | The leverage (ratio of debt, D, to equity, E, of the firm) (dimensionless) |