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Hi sir,
Can i clarify with you the reason we need to calculate tax adjusted gearing…?
Thanks…
We need to use the asset beta formula to be able to adjust the equity beta for the different levels of gearing.
The old examiner decided to call the Ve/(Ve+Vd(1-T)) in the formula the ‘tax adjusted gearing’ but there is certainly no need to call it that. It is simply using the asset beta formula as normal.
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