1. What is Levered Beta?

Levered beta (β_l) measures the volatility of a company's stock relative to the market, taking into account its debt. It shows how much risk the company's equity carries compared to the market as a whole.

2. How Does the Calculator Work?

The calculator uses the levered beta formula:

Where:

• \( \beta_l \) — Levered beta (dimensionless)
• \( \beta_u \) — Unlevered beta (dimensionless)
• \( tax\_rate \) — Corporate tax rate (fraction)
• \( D \) — Total debt ($)
• \( E \) — Total equity ($)

Explanation: The formula adjusts the unlevered beta for the financial risk introduced by debt, accounting for the tax shield benefit of debt.

3. Importance of Levered Beta

Details: Levered beta is crucial in the Capital Asset Pricing Model (CAPM) to calculate a company's cost of equity, which is used in weighted average cost of capital (WACC) calculations for valuation and capital budgeting decisions.

4. Using the Calculator

Tips: Enter unlevered beta (typically between 0.5-2.0), tax rate as a fraction (e.g., 0.21 for 21%), debt and equity in dollars. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between levered and unlevered beta?
A: Unlevered beta measures business risk alone, while levered beta includes both business and financial risk from debt.

Q2: What is a typical range for levered beta?
A: Most companies have betas between 0.5-1.5. High-risk industries may have betas above 2.0.

Q3: How does debt affect beta?
A: More debt increases equity beta because debt amplifies the volatility of equity returns.

Q4: When should I use levered vs unlevered beta?
A: Use levered beta for equity valuation and unlevered beta when evaluating projects or comparing companies with different capital structures.

Q5: How do I find unlevered beta for my company?
A: You can unlever comparable companies' betas or use industry averages, then relever for your company's capital structure.