How does a company determine its unlevered beta?

A company determines its unlevered beta by taking the equity beta (or levered beta) and unlevering it. This is done to remove the financial effects of leverage, thus reflecting the risk of the company's assets themselves, rather than the risk of the company's equity. The formula to calculate unlevered beta is: Unlevered Beta = Levered Beta / (1 + ((1 - Tax Rate) * (Debt/Equity))).

Question was asked on:

If you also want to compare your investment's performance against other opportunities, the WACC tab is the way to go. The Weighted Average Cost of Capital (WACC) tab represents the average rate a company should pay to finance its assets. At the center of WACC is the "unlevered beta". A higher unlevered beta means that a company is more volatile and riskier than the market average, while a lower unlevered beta means that a company is less risky.

Asked on the following spreadsheet:

resource preview

Capital Budgeting Spreadsheet

Are you looking to determine which investment opportunities are best for your company, especially when multiple options are available? How can you tel...

file_save

Download free weekly spreadsheets

Enter your email address to download and customize spreadsheets for free

Not for commercial use

OR
file_save

Download 'Capital Budgeting Spreadsheet' spreadsheet — 9 sheets

Capital Budgeting Spreadsheet

+39 more spreadsheets per quarter

that's $3 per spreadsheet

$117

/ Quarterly

Commercial use allowed. View other plans

Preview (9 sheets)

View all chevron_right