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Why is beta unlevered and then relevered in a WACC calculation?

  1. A To remove the effect of comparables' capital structures and apply the target's own
  2. B To adjust for inflation
  3. C To convert to a real rate
  4. D To account for taxes only
Answer

To remove the effect of comparables' capital structures and apply the target's own

Observed equity betas reflect each comparable's leverage, so they must be converted to asset betas before averaging.

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