A comparable company has a levered beta of 1.2, a debt-to-equity ratio of 0.5, and a 20% tax rate. What is its unlevered beta?
- A. 1.20
- B. 0.80
- C. 1.68
- D. 0.86Correct
Takeaway. Unlevering isolates business risk so a peer's beta can be relevered at the target's own leverage.
