Problem: Values for hillshade or slope are incorrect when using digital elevation model (DEM) in geographic projection
When calculating slope, the output values for the resulting raster are incorrect. The values are usually much greater than expected.
When ArcGIS calculates a slope, or a hillshade, the x and y units (horizontal) are presumed to be the same as the z units (vertical). This causes problems because the linear distance of a degree of latitude varies.
Solution or Workaround
For data that must be maintained in a geographic coordinate system:
Follow the steps in the ESRI Knowledge Base article listed in Related Information below.
For data does not need to be maintained in a geographic coordinate system:
Project the data to a coordinate system that does not use decimal degrees or degrees minutes seconds for the x,y units of measure. Go to: ArcToolbox > Data Management Tools > Projections and Transformations > Raster > Project Raster.