Definition of Unlevered Equity

An unlevered equity is the equity that is not adjusted for debt. In the capital structure of a company, usually the assets are financed with a combination of both debt and equity, in which case the cost of capital is adjusted for the both cost of debt and equity. The resulting cost of capital is called the levered cost of capital.

When companies finance a project solely with equity and no debt, it would be called an unlevered equity. When the project is financed without debt but the capital structure contains both debt and equity, it is necessary to estimate the unlevered equity beta to find the true cost of equity to be used in the investment appraisal.