The unlevered beta reflects the firm's degree of cyclicality and operating leverage but not financial leverage.

Question

Quizplus · Accepted Answer

The unlevered beta measures a company's sensitivity to market movements and operating performance, independent of its capital structure. It only takes into account the firm's business risk or operating risk, which comes from the nature of its operations, industry, and overall economic environment. Financial leverage, on the other hand, affects the firm's risk profile through the use of debt or other fixed-cost financing, which can amplify the effects of market fluctuations on the company's earnings and value.

The Unlevered Beta Reflects the Firm's Degree of Cyclicality and Operating