When unlevering beta and using comparable companies, can you relever the target company’s beta using the peer median debt to equity ratio and then calculate WACC using the target company’s weights?
Is there any indication that the peer group’s median D/E is representative of what the target firm’s D/E is likely to be in/for the foreseeable future?
Yes of course it’s done all the time. Using industry comparable (using common leverage assumption) enhances the benchmark representativeness and then recasting it using the subject firm existing (expected) leverage to reflect its unique capital structure reflected in the multiple/discount.
OP, you’re asking if it is okay to use median beta of comparable AND use the average D/E of comparable to come up with the beta of the Company? the calculation of unlevered beta already takes each comparable firms’ D/E ratio…so why take the average again?