Aswath Damodaran 142
Disney Cap Cities Beta Estimation: Step 1
! Calculate the unlevered betas for both firms
- Disney’s unlevered beta = 1. 15 /( 1 + 0. 64 * 0. 10 ) = 1. 08
- Cap Cities unlevered beta = 0. 95 /( 1 + 0. 64 * 0. 03 ) = 0. 93
! Calculate the unlevered beta for the combined firm
- Unlevered Beta for combined firm
= 1. 08 ( 34286 / 53401 ) + 0. 93 ( 19115 / 53401 )
= 1. 026
[Remember to calculate the weights using the firm values of the two firms]
The unlevered beta of the combined firm will always be the weighted average of
the two firms’ unlevered betas. The firm values (rather than the equity values) are
used for the weights because we are looking at the unlevered betas of the firms.
