31 Interestexpenses alwayslower netincome,but thefact
that the firm uses debt instead of equity implies that the
numberofshareswillalsobelower.Thus,thebenefitofdebt
shows up in earnings per share.
32 Toignorethetaxeffects,computetheleveredbetaasβL=
βu[1+D/E].Ifdebthasmarket risk(i.e.,itsbetaisgreater
thanzero),theoriginalformulacanbemodifiedtotakeitinto
account.IfthebetaofdebtisβD,thebetaofequitycanbe
written as βL= βu[1+(1 −t)D/E)) − βD(1 −t)D/E.
33 The exception is when you have stock tracking each
division traded separately in financial markets.
34 Whenitcomestocash,wehaveachoice.Wecaneither
leave it out and compute an unlevered beta for just the
operatingbusinessesorconsidercashasanasset,estimateits
weight in the firm, and assign a beta of zero to it.
35 Wefirst estimatedtheenterprisevalueforeachfirmby
addingthemarketvalueofequitytothebookvalueofdebt
andsubtractingoutcash.Wedividedtheaggregateenterprise
valuebyrevenuesforallofthecomparablefirmsto obtain
themultiples.Wedid not usethe averagesofthe revenue
multiples of the individual firms because a few outliers
skewedtheresults. WhileDisneyhas about$1.2 billionin
cash,itrepresentsabout1.71percentoffirmvalueandwill
haveanegligibleimpactonthebeta.Wehaveignoreditin
computing the beta for Disney’s equity.
36 Disney reported this marginal tax rate in its 10-K.