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Unlevered beta

The beta the operations would have if they were all-equity financed: equity beta divided by one plus after-tax debt-to-equity, with debt beta taken as zero.

Equity beta rises with financial leverage, because the same swing in operating results lands on a thinner slice of equity. Unlevered beta, also called asset beta, undoes that so betas can be compared across capital structures.

Hamada's teaching identity is βU=βE/(1+(1−t)(D/E))\beta_U = \beta_E / (1 + (1-t)(D/E)). Relever at the target D/E, not the current one, before putting the result into a cost of equity or a WACC.

The unlevered beta calculator runs that identity and checks it by relevering at the same D/E.

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