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.
Bu = BL / [ 1 + (1-t)(D/E) ]
Bu = [ BL + Bd (1-t) (D/E)] / [ 1 + (1-t)(D/E) ]