Unlevered Beta reveals hidden asset risk.
Dr. Sharma wants to expand her practice, valued at $750,000, requiring a significant loan. She's concerned that standard financial metrics don't accurately reflect the underlying risk of her practice's assets, obscured by her existing debt of $280,000 (student loans) and potential new business loan for expansion. She needs to understand the true, unlevered risk to make an informed decision and negotiate favorable loan terms.
Using the Unlevered Beta Calculator, we isolated the risk associated solely with Dr. Sharma's practice assets. After inputting the levered beta of comparable medical practices, her practice's tax rate, and debt-to-equity ratio (derived from her existing liabilities and the practice valuation), we determined her unlevered beta to be 0.85. This allowed for a more precise assessment of the asset risk, independent of her debt financing, enabling better risk management strategies and potentially leading to a lower interest rate on the expansion loan.
The Unlevered Beta Calculator uses the Hamada equation to remove the impact of debt from the observed beta, providing a clear view of the company's asset risk. This adjusted beta is then used in capital budgeting and valuation models.
$12,000 saved in interest payments over the loan's lifetime due to a lower perceived risk profile.
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