1. What is Unlevered Beta?

Unlevered beta (β_u) measures the market risk of a company without the impact of debt. It shows the volatility of returns for a business that has no debt, reflecting only its business risk.

2. How Does the Calculator Work?

The calculator uses the unlevered beta formula:

Where:

• \( \beta_l \) — Levered beta (reflects current capital structure)
• \( tax\_rate \) — Corporate tax rate (as a fraction, 0-1)
• \( D \) — Total debt (in $)
• \( E \) — Total equity (in $)

Explanation: The formula removes the financial risk component from levered beta to isolate pure business risk.

3. Importance of Unlevered Beta

Details: Unlevered beta is used to compare companies with different capital structures and is essential for calculating cost of equity in valuation models like WACC.

4. Using the Calculator

Tips: Enter levered beta (typically from comparable companies), tax rate as a fraction (e.g., 0.25 for 25%), debt and equity values in dollars. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: Why calculate unlevered beta?
A: It allows comparison of companies with different capital structures and is used when projecting betas for companies changing their debt levels.

Q2: What's a typical unlevered beta range?
A: Most companies fall between 0.5-1.5, with utilities at the lower end and tech companies at the higher end.

Q3: How is this different from levered beta?
A: Levered beta includes both business and financial risk, while unlevered beta only reflects business risk.

Q4: When should I use this calculation?
A: When valuing acquisitions, comparing companies with different leverage, or estimating cost of capital for capital structure changes.

Q5: What if my company has no debt?
A: Then levered and unlevered beta are the same (D/E = 0 makes the denominator 1).