To find either the value of a firm or its WACC, we need an estimate of the

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Question:

To find either the value of a firm or its WACC, we need an estimate of the cost of common equity. What is the Hamada Equation, and how is it used to help determine the cost of equity? Since Hamada developed his equation by synthesizing the MM with tax theory and the CAPM theory, and since both of those theories have been questioned, the Hamada equation might not properly describe the relationship between leverage and the cost of common equity. What alternative method or methods can you think of for finding the cost of equity under different capital structures? (Hint: Think about getting equity costs the way the cost of debt schedule was developed.)