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 the observed (levered) beta to find the business's inherent risk.

3. Importance of Unlevered Beta

Details: Unlevered beta is used to compare companies with different capital structures, evaluate projects, and calculate cost of equity for companies considering capital structure changes.

4. Using the Calculator

Tips: Enter levered beta (typically from comparable companies), tax rate as a fraction (e.g., 0.21 for 21%), debt and equity values in dollars. All values must be positive (except tax rate which must be between 0-1).

5. Frequently Asked Questions (FAQ)

Q1: Why calculate unlevered beta?
A: It allows comparison of companies with different debt levels and helps evaluate projects that may have different financing than the parent company.

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

Q3: How do I get levered beta for inputs?
A: Levered beta is often available from financial data providers like Bloomberg or calculated from historical stock returns.

Q4: What if my company has no debt?
A: If debt is zero, unlevered beta equals levered beta since there's no leverage effect to remove.

Q5: Can unlevered beta be negative?
A: While theoretically possible, negative betas are extremely rare in practice and usually indicate data issues.