Hi all, I have a few questions related to the beta estimation for nonpublic companies (say a private bank that has client deposits/accounts) In a first step publicly traded peer companies as well as their betas have to be determined. Next, the beta shall be un-levered according to “beta_unlevered = (beta_levered) / ((1 + (1-t) * D / E ))” and relevered with the capital structure of the nonpublic company Q1) The un-levering can be done with or without the term (1-t). What are the assumptions in each method? Q2) For Equity do we have to us Book Value of Equity or Market Value of Equity? Q3) For Debt do we have to deduct something (e.g. client deposits) or do we take total debt? Q4) In terms of “Bloomberg-mnemonics” which “mnemonics” would be use for D and E? Thank you!
without (1-t), there implicit assumption is that debt interest isn’t tax deductible; the firm doesn’t pay tax Market value of equity and debt. If the capital structure of the companies are assumed to change (say, if there is convergence to target), use the target Total debt I don’t know the answer to your last question