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Unlevered Beta / Effective Tax Rate with Negative pre-tax Income

From a practical standpoint, what do you use for the Effective Tax Rate in the unlevered beta calculation if the firm has pre-tax losses?

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I would use the statutory rate. Probably the one in the relevant / current tax bracket.

Remember that WACC rate or discount rate calculation is meant for valuation and valuations look forward, not to the past. Also, valuations normalize incomes and cash flows. That company describing income losses now, may revert that figure because probably a punctual event. Using the effective tax rate of the last year for beta calculation and applying it in a firm valuation is just a total non-sense.

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Sócrates

I believe that at Level II you needn’t bother with the tax rate; the formula is simpler than that given at Level I, and doesn’t include the tax rate (although, as I recall, they include the Level I formula (with the tax rate) in a footnote).

Simplify the complicated side; don't complify the simplicated side.

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