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Sir
1.I have a question in paper JUNE 12, the Q4 part (a). when I calculate the weighted average beat asset in Tisa Co. my calculation process: Elfu : MV of equity: 480
MV of debt 96
‘for other activities’: MV of equity 360(480*75%)
MV of debt: 76.8(96*80%)
so the beta asset amount of Elfu is 1.217, and the beta asset ‘for other activities’ is 1.078
,then I calculated the weighted average of beta asset for Tisa is [1.078*(360+76.8)+1.217*(480+96)]/(1012.8)=1.157. I think the answer does not make sense. they use the balancing figure to get the beta asset for Tisa. and they only consider the equity value. what’s wrong with my workings? thanks aheadThe equity beta of Elfu is its overall beta – i.e. the beta of component production together with the beta of its other activities (which is 1.25). So the overall beta will be the weighted average of the two betas, so you need to work backwards to find the beta of component production (which is what we need Tisa).
The reason they only use the equity values is because it is the equity that carries the risk.
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