§ 01
AAPL — Debt/Equity, Market Cap. Open AAPL on the Ledge to see current values.
§ 02
β Unlevered = β Levered / [1 + (1 − Tax) × (D/E)]
§ 03
| Step | What You’re Doing | Formula |
|---|---|---|
| 1. Unlever | Remove financial risk from peer betas | βu = βL / [1 + (1−T)(D/E)] |
| 2. Average | Take median unlevered beta of peers | Median(βu) |
| 3. Relever | Add target company’s financial risk back | βL = βu × [1 + (1−T)(D/E)] |
§ 04
Using an industry unlevered beta and relevering to your target’s capital structure is more reliable than using the target’s own levered beta, which is noisy and unstable.
§ 05
Take 3–5 peers in the same industry. Unlever each beta using their D/E ratios. The median unlevered beta should be more stable than any individual company’s levered beta.
§ 06
Two companies in the same industry: Company A has beta 1.5 and D/E of 1.0. Company B has beta 0.9 and D/E of 0.2. Which has higher business risk?
§ 07
§ 08
Company A's levered beta is 1.4 (D/E = 1.0). You're valuing a similar-industry company (D/E = 0.3). How do you adjust beta?
Five questions · AI feedback
Sit with the ideas.
Three restaurant chains have: (A) Beta 1.2, D/E 0.5x; (B) Beta 1.5, D/E 1.0x; (C) Beta 0.95, D/E 0.1x. Tax rate is 25% for all. What are their unlevered betas, and what do they tell you?
Why: