1. What is Unlevered Beta?

Unlevered beta (or asset beta) measures the market risk of a company without the impact of debt. It shows the volatility of returns for a business, excluding financial leverage.

2. How Does the Calculator Work?

The calculator uses the unlevered beta formula:

Where:

• \( \text{Levered} \) — Levered beta (reflects current capital structure)
• \( \text{Debt/Equity} \) — Company's debt-to-equity ratio
• \( \text{Tax} \) — Corporate tax rate (as decimal, e.g., 0.25 for 25%)

Explanation: The formula removes the effect of financial leverage to show the pure business risk of a company.

3. Importance of Unlevered Beta

Details: Unlevered beta is essential for comparing companies with different capital structures, evaluating potential acquisitions, and calculating cost of equity for capital budgeting.

4. Using the Calculator

Tips: Enter levered beta (typically available from financial sources), debt/equity ratio (from balance sheet), and tax rate as decimal (e.g., 0.21 for 21%).

5. Frequently Asked Questions (FAQ)

Q1: Why calculate unlevered beta?
A: It allows comparison of companies' business risks independent of their financing decisions.

Q2: What's a typical unlevered beta range?
A: Most companies have unlevered betas between 0.5 and 1.5, with 1.0 being average market risk.

Q3: How do I get levered beta?
A: Levered beta is often available from financial websites (e.g., Yahoo Finance, Bloomberg) as "beta."

Q4: Can unlevered beta be negative?
A: Extremely rare - would imply the asset moves opposite to the market in all conditions.

Q5: When should I relever beta?
A: After finding comparable companies' unlevered betas, you can relever using your target capital structure.