Comparing two otherwise equal ﬁrms, the beta of the common equity of a levered ﬁrm is ____________ than the beta of the common equity of an unlevered ﬁrm.

Question

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The beta of the common equity of a levered firm is greater than the beta of the common equity of an unlevered firm due to the additional financial risk introduced by the use of debt in the capital structure. The beta of levered equity reflects the systematic risk resulting from the company's leverage, while the beta of unlevered equity only reflects the systematic risk of the underlying business operations.

Comparing Two Otherwise Equal ﬁRms, the Beta of the Common