Why when the beta a is unlevered and relevered there is a tax shield estimated if the betas will be used for the cost of equity paid to equity holders and these are paid after taxes?

Question

anonymous · Answer

BOTTOM UP BETA TALES OPERATING,FINANCING RISK INTO CONSIDERATION.
THIS IS THE AFTER TAX COST WHICH WILL BE PAID TO LENDERS BEFORE ANY RETURN TO THE INVESTORS.
AFTER TAX COS INVESTORS WOULD GET THE PORTION OF THAT COST BACK IN TERMS OF TAX SAVINGS TO THEM.

ROE=ROC+D/E(ROC-I*(1-T))