[Verse 1] When companies have different risks inside Pure-play method helps us find what's true Take apart the businesses they hide Isolate the beta that's right for you Find a company that's purely one thing Match the risk you're trying to analyze That's the beta number you should bring To value projects of a similar size [Chorus] Unlever first then relever again Strip out the debt then add it back in Pure-play beta shows the business risk Unlever first then relever again Capital structure we must comprehend Financial leverage changes what we get [Verse 2] Asset beta is the business alone Without the debt that makes it swing around Equity beta includes what they owe Financial risk makes bigger ups and downs Use the formula to strip debt away Divide by one plus debt to equity Times one minus tax rate for the day Now you've got pure business activity [Chorus] Unlever first then relever again Strip out the debt then add it back in Pure-play beta shows the business risk Unlever first then relever again Capital structure we must comprehend Financial leverage changes what we get [Bridge] Find comparable companies in the same line Unlever their betas to see business risk Then relever with your capital design The target structure that you can't dismiss Different debt levels mean different risk Adjust the beta for the leverage mix [Verse 3] Now you've got the beta for your case Reflects both business and financial risk Pure-play method puts you in the right place No more guessing what the number is When capital structures aren't the same Unlever and relever is the game [Chorus] Unlever first then relever again Strip out the debt then add it back in Pure-play beta shows the business risk Unlever first then relever again Capital structure we must comprehend Financial leverage changes what we get [Outro] Pure-play method breaks it down Asset beta business risk Equity beta total risk Unlever and relever now
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