Abstract

This article presents an alternative methodology to unlever equity betas for the computation of the cost of capital. The “classic” Hamada formula assumes that the financial risk is borne by the shareholders of the company. The alternative formulas presented take a different option and assume that a portion of the risk should be attributed to the lenders (debtholders). For this purpose, a practical alternative formula is proposed, which can prove useful for valuation purposes, especially in the case of highly indebted companies.