Unlevering & Relevering Betas with Divergent Tax Rates

Whenever an unquoted company is to be valued the determination of cost of capital isperformed by using observable betas of comparable peer group companies. However, thesebetas have to be adjusted for diering degrees of leverage. This so-called unlevering andrelevering belongs to the standard repertoire of modern nance theory, but so far, the eectof divergent tax rates between the company being valued and the peer group has neverbeen adressed in context of unlevering und relevering beta. We abstain from the implicitassumption of unique tax rates by deriving an adjustment formula for beta that takes intoaccount not only divergent leverage ratios but also divergent tax rates. Moreover, in annumerical analysis we quantify the mispricings that result from a disregard of divergenttax rates and show that these distortions can be of signicant extent.