Hamada Equation
The relationship linking levered and unlevered beta through capital structure: levered equals unlevered times one plus one-minus-tax times debt-to-equity. The mechanism behind the observation that adding debt does not lower the cost of capital as much as it first appears, because cheaper after-tax debt is offset by the higher beta it forces onto the equity. Work through it interactively in the Beta Refresher lab at /labs/beta.
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