To estimate a company's beta,using an industry-derived unlevered beta relevered to the company's target capital structure is preferred to directly estimating a company-specific beta.

Question

Quizplus · Accepted Answer

Relevering an industry beta to a company's capital structure takes into account the company's specific debt and equity mix, which affects the riskiness of the company's shares. This method is more precise than directly estimating a company-specific beta, which may be influenced by idiosyncratic risk factors specific to the company but not applicable to the industry as a whole.

To Estimate a Company's Beta,using an Industry-Derived Unlevered Beta Relevered