How this calculator works
Remove the financial leverage effect from an equity beta using the Hamada-style tax adjustment. This assumes debt beta is zero and uses a consistent debt-to-equity valuation basis. You can enter the tax rate and leverage directly or derive them from positive pre-tax income, after-tax income, debt and equity.
Formula
Unlevered beta = levered beta / [1 + (1 - tax rate) × debt/equity]. Relevered beta = unlevered beta × [1 + (1 - tax rate) × debt/equity]. Effective tax rate = 1 - net income / pre-tax income.
Worked example
A levered beta of 1.2, 25% tax and debt/equity of 0.5 gives 0.872727 unlevered beta. A levered beta of 1.5, 20% tax and debt/equity of 1 gives 0.833333.
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Frequently asked questions
Is debt really risk free?
The formula treats debt beta as zero. Risky debt may require a more complete asset-beta model.
Should I use an effective or marginal tax rate?
Use the tax assumption appropriate to the leverage adjustment. The income mode calculates an effective rate; it may differ from the forward marginal rate.
Can I relever beta for another financing mix?
Yes. Select the levered beta target and enter the desired debt/equity ratio and tax rate.