Question: One concern with using sector-average betas, even if you adjust for financial leverage, is that you are assuming that the operating leverage for your firm

One concern with using sector-average betas, even if you adjust for financial leverage, is that you are assuming that the operating leverage for your firm is similar to that of the other firms. Assume that 70% of the costs in your company are fixed costs, whereas only 50% of the costs in the average company in the sector are fixed costs. If the unlevered beta for the sector is 0.80.

What would you expect the unlevered beta for your company to be?

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