Levering Your Beta (Not in Front of The Kids, Honey) difference, describes, companies, different

torontoanalyst

There are two different beta adjustment descriptions for thinly traded companies.

Be it that im nto a mathemetician and I suck at seeing relationships, they may be the same,

Dne describes the betas as asset and equity and the otehr as levered and unlevered


Whats the difference between these


o ΒEquity = Beta Asset/ [E/ D/E]

o ΒAsset = ΒEquity x [E / D/E]


And these

Bunlevered = [1/ (1+D/E)]Be
Be = [1+ (D/E)]Bu




Thanks

Rolo

SFoyil

First two - did you mean to say

E/(D+E)

if so - they are the same... what they talk about in Equity, and what they talk about in the LBO method... (PE Chapter, Alt Inv).

CP

ppls

I don't know why de-levering Beta has to be so confusing...

To de-lever Beta, simply divide it by the leverage ratio A/E. To re-lever Beta with a different capital structure, multiply by A/E.

Someone please jump in if I have missed something.

chandsingh

TheDooner64, I think you are right, I hadn't noticed how simple it really is.

Tho you did forget the tax shield, tho:
Delevered beta with taxes: divide by (1 + (1-t) x D/E)
Relevered beta with taxes: multiply by (1 + (1-t) x D/E)

Intuitively, is it fair to say that as you add debt to a capital structure you expect the riskieness of the the overall company to decrease, since debt is viewed as less risky?

tobeornottobe

zoya Wrote:
-------------------------------------------------------
> TheDooner64, I think you are right, I hadn't
> noticed how simple it really is.
>
> Tho you did forget the tax shield, tho:
> Delevered beta with taxes: divide by (1 + (1-t) x
> D/E)
> Relevered beta with taxes: multiply by (1 + (1-t)
> x D/E)
>
> Intuitively, is it fair to say that as you add
> debt to a capital structure you expect the
> riskieness of the the overall company to decrease,
> since debt is viewed as less risky?

You don't need to include the tax shield, since you are accounting for it when you run your cash flows. You either incorporate it into the rate or calculate it separately, but not both.

NO EXCUSES

giants2010

Funny thread title. I chuckled.

That is all.