ModeldrillUnlever and relever beta from peers
A financial modeling exercise from Modeldrill. Solve it with a live spreadsheet grid in your browser, with Fill right and Fill down, and it is checked the moment you submit.
The task
Four listed peers are in rows 5 to 8. Fill debt to equity (column F) and the unlevered beta (column G: levered beta divided by one plus (1 less tax rate) times debt to equity). Average the unlevered betas in B10 with AVERAGE, then relever that average in B13 at the target debt to equity in B11 and the target tax rate in B12.
What this exercise teaches
Observed betas carry each peer's own debt load. Stripping that out gives a business-risk beta that can be averaged, then dressed in the target capital structure. Averaging the levered betas directly mixes four different leverage levels into one number.
A hint if you get stuck
Unlevering divides by the leverage factor 1 + (1 - t) x D/E; relevering multiplies the average by the same factor built from the target inputs.
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