- This topic has 1 reply, 2 voices, and was last updated 11 years ago by
.
- Posts
1 – How to calculate or decide the current price & exercise price in a case study of BSOP model. I mean to say on what basis we will decide which one will be current price & which one will be exercise price in a case or scenario.
2 – I have come across in several question the cost of equity has calculated on asset beta or un geared beta rather than geared/equity beta. is it correct to calculate the Ke on asset beta. if it is on what circumstances Ke will be calculated on asset beta.
Pls help me out.
Thanks.
1. The exercise price will be the cost incurred if the available option for the investment was taken, so the question might say the current cost is x, where as the company could choose to delay the project for a year, where the cost will be y.
2. Equity beta is the ungeared risk, so the risk originating in just the equity investment. The asset beta incorporates any financing risk from debt. Ke is the cost of equity so you would have to ungear an asset beta to determine ke, else it would contain elements of debt. If you are given an asset beta, you need to ungear it using equity/debt ratios
Is that what you are asking?
- You must be logged in to reply to this topic.