1 / 3

Unlevering Beta

Unlevering Beta. If debt has no market risk, you can unlever equity Beta (B L ) as follows: B u = B L / [ 1 + (1-t)(D/E) ] Where t is the tax rate and B L is the observable levered Beta of equity. Unlevering Beta.

jana
Download Presentation

Unlevering Beta

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Unlevering Beta • If debt has no market risk, you can unlever equity Beta (BL) as follows: Bu = BL / [ 1 + (1-t)(D/E) ] • Where t is the tax rate and BL is the observable levered Beta of equity.

  2. Unlevering Beta • If debt has market risk measured as Bd then can unlever equity Beta (BL)as follows: Bu = [ BL + Bd (1-t) (D/E)] / [ 1 + (1-t)(D/E) ] • Where t is the tax rate and BL is the observable levered Beta of equity.

  3. Practice Applications • Compute the Unlevered Beta for the stock you picked for our stock picking contest. • What would be the relevered Beta for a project that will use 70% debt? • Assuming Debt has no market risk • Assuming Debt has a Beta equal to .20 • What would the WACC be for the project for each scenario mentioned above? • Check the answers of group members and have them check your answers. Call the professor if a consensus can’t be reached for a correct answer.

More Related