Betas and Leverage

Find the unlevered beta

Enter the current beta of the company = 1.40
Enter the marginal tax rate for the company = 36%
Enter the debt/equity ratio 14%
Unlevered Beta for the firm = 1.28

Find the levered beta

Enter the unlevered beta of the company = 1.28
Enter the marginal tax rate for the company = 36%
Enter the debt/equity ratio 14%
Levered Beta for the firm = 1.40
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Betas and Leverage

These inputs are absolutely essential to the calculation.
Enter the current beta of the company = 1.40
Enter the marginal tax rate for the company = 36%
Enter the average debt/equity ratio over the period of the regression = 14%
The following inputs are useful for the re-estimation of the beta, if the current D/E ratio is differen
Enter the current market value of equity in the company = $50,889
Enter the current book value of debt in the company = $12,342

Enter the average maturity of the debt in the company = 5

Enter the interest expenses from the most recent 12 months = $876

Enter the current market interest rate on this company's debt = 7.50%

Market Value of Debt = $12,142

Output from the Analysis

Unlevered Beta for the firm (based upon average debt/equity ratio) = 1.28
Current Beta for the firm (based upon current debt/equity ratio) = 1.48

Debt to Capital Debt/Equity Ratio Beta Effect of Leverage

0.00% 0.00% 1.28 0.00
10.00% 11.11% 1.38 0.09
20.00% 25.00% 1.49 0.21
30.00% 42.86% 1.64 0.35
40.00% 66.67% 1.83 0.55
50.00% 100.00% 2.11 0.82
60.00% 150.00% 2.52 1.23
70.00% 233.33% 3.20 1.92
80.00% 400.00% 4.57 3.29
90.00% 900.00% 8.69 7.40

Customized Inputs
Enter the debt/equity ratio that you think the firm will have = 35%

Levered Beta based upon this debt/equity ratio = 1.57

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as and Leverage

the current D/E ratio is different from the average.

Outstanding Debt BV $12,342
Debt Maturity 5
Recent 12-month
Cost of Debt 7.1%
Interest Expenses $876.28
Current Market Cost
of Debt 7.50%
PV of Annuity Debt
Interest p.a. $3,545.34
PV of Debt $8,596.93
Market Value of Debt $12,142 13.33 9.29

(only if you enter the current value inputs)

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4.05

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 Given:
Tax rate 36%
Debt 10.38
Risk premium 5.50% Rp
T-bond rate 7.50% Rf
13.00% Rm Ke (unlevered)
Required return
Equity value Unlevered
on equity
of division
Business group beta (unlevered)
1 Mainframes 20 1.1 13.55% 22
2 PCs 0 1.5 15.75% 0
3 Instruments 10 2 18.50% 20
4 Peripherals 15 1 13.00% 15

Whole firm 45 1.27 14.47% 57

45
Whole firm (levered) 1.51 15.80% 1.27
34.62