Hi,

I'm doing a study on UAL corp. (United Airlines) for a project in business school
I'm having trouble calculating the WACC for UAL.
In order the calculate the WACC I need the cost of equity.

Using CAPM:
Ke = Rf + relevered beta*ERP
with Rf: risk free rate
ERP: estimated risk premium

For the beta.
I first calculated the current levered beta being Covar(Rm,Rual)/var(Rm)
Then I calculated the
unlevered beta = Current levered beta /(1+(1-T)*(D/E))
With T: marginal tax rate
D/E: Debt to equity ratio

This is where the problem occurs. I have a negative Debt to Equity ratio.

So I don't have an unlevered beta to relever to a new target debt to equity ratio.

The same problem occurs in the WACC formula:
WACC= Ke* E/(E+D) + kd*D/(D+E)+...

The negative ratio's screw up any financial meaning to my calculations.

Anyone has any idea how to value a company with negative equity?