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Intermediate

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?

  1. A. 1.20
  2. B. 0.80
  3. C. 1.68
  4. D. 0.86Correct

Takeaway. Unlevering isolates business risk so a peer's beta can be relevered at the target's own leverage.

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