This workout asks us to calculate the industry beta for the following group of companies So if we look at company A, we can see that a Beta has been given to us of 1.10 The problem is we can see that company A has debt of 25% Similar things happen with company B through E, they've all got debt Each of their Betas if already levered, it's already got debt in it If we're calculating the average industry beta, we need to strip out the debt and find out the risk just from the industry The betas at the moment have the risk of debt and the industry within So we need the formula to unlever our beta and to do that, we take the beta and divide through by the open brackets one plus, open brackets again, one minus the tax rate All multiplies by, open brackets debt divided by equity closed brackets So if I press enter, that gives me an unlevered beta of 0.89 There is a sense check here, I've take debt out of the beta I've thus taken a source of risk out, should my beta go up or down, it should go down The higher your beta, the more volatile your profits So if I've got less debt and less risk, then that should make my profits less volatile So my beta has come down from 1.10 to 0.89 Because I've written the formula the way I have (linking to cells), I can now just copy that down to the cells below So I press control D and that copies that all the way down I now want to find the average industry beta, so I use the average function I select the 5 cells I want the average of, and that gives me my answer. The average industry beta is 0.86 If I then wanted to apply that to another company (maybe company F?) Then we could relever that industry beta using company F's level of debt