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, excluding financial leverage.

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 value ($)
• \( E \) — Total equity value ($)

Explanation: The formula removes the effect of debt from levered beta to show the company's pure business risk.

3. Importance of Unlevered Beta

Details: Unlevered beta is crucial 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 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 business risk across companies with different debt levels and is used to calculate project-specific discount rates.

Q2: What's a typical unlevered beta range?
A: Most companies have unlevered betas between 0.5-1.5. Utilities tend to be lower (0.3-0.6) while tech companies higher (1.0-2.0).

Q3: How accurate is this calculation?
A: It provides a good estimate but assumes constant debt levels and perfect capital markets. More complex models exist for volatile capital structures.

Q4: When should I use levered vs unlevered beta?
A: Use unlevered beta to compare business risk, levered beta to calculate cost of equity for a specific company's capital structure.

Q5: Can unlevered beta be negative?
A: Extremely rare in practice. Negative beta would imply returns move opposite to the market, which is unusual for most businesses.