Tag: 'Relevered Beta'


Step 5 – Target Capital Structure and Beta in a DCF model

This section is for you who have access to a database such as Bloomberg or Reuters. If you do not have such access, you can type in:
Debt to Total Capitalization: 30%
Equity to Total Capitalization: 70%
This is the most common assumption when determining capital structure in a business valuation model. However, the below described method is more accurate and preferred if you have all the needed tools.

The picture describes the input we have made in our example valuation, which is further described below:
Target Capital Structure

Assumptions and input

  1. Identify a couple of listed companies that are similar to the one that you want to estimate business value upon
  2. Enter the listed companies beta which can be found via a database such as Bloomberg
  3. Enter the Market Value of debt of these companies. The market value of debt is the same as book value of debt
  4. Enter the market cap for the traded peers
  5. Enter the marginal tax rate
  6. All this information can be found in the database. Now the model will calculate the Beta and unlevered and levered Beta and put as input in the valuation model


Step 6 >>

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