Hi guys I understand generally the concept and calculations behind Beta and the CAPM, but have some specific questions re: "target capital structure" that you are re-levering to. If the company you are valuing is public, wouldn't you just use its current beta rather than looking at comps? If you are valuing a company for a buyout, then would you re-lever the beta assuming your new, highly levered capital structure or would you use an average capital structure based on peers? Thanks

No, the market beta you're pulling off Cap IQ or Bloomberg is a beta that is levered to the market capital structure; it's not levered to your capital structure. This is why you need to unlever and relever beta using the target capital structure for your company. You use the current capital structure, not the post-transaction capital structure, and not some airy fairy constructed capital structure. The correct accounting answer here is pretty technical - read up on "equity method of accounting".

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Hi guys

I understand generally the concept and calculations behind Beta and the CAPM, but have some specific questions re: "target capital structure" that you are re-levering to.

If the company you are valuing is public, wouldn't you just use its current beta rather than looking at comps?
If you are valuing a company for a buyout, then would you re-lever the beta assuming your new, highly levered capital structure or would you use an average capital structure based on peers?

Thanks

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solidgk

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9y

Another random one:

If I'm forecasting minority interests on the P&L using a growth rate, how would this flow to the balance sheet? Could I just apply a constant PE multiple?

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nj671

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