# Unlevering Beta - PowerPoint PPT Presentation

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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.

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Unlevering Beta

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### 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.

### 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.

### 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.