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Morning John, been trying to get my head around this but no luck.
I’m trying to work out the geared beta of a combined company after acquisition.
In the bpp textbook the formula used is:
Asset beta x (1+(1-t) x (total debt/total equity))
Why is the asset beta formula from the formula sheet not used?
Many thanks
It is the same formula.
The formula on the formula sheet gives the asset beta when we know the equity beta.
If you rearrange the formula then the equity beta is equal to what is typed in the BPP text book.Rather than learn the rearranged formula it is better to make sure that you can rearrange it quickly yourself in the exam (otherwise there is the big risk of remembering it wrongly in the middle of the exam 🙂 )
John I’m such an idiot. Forgive me I had used the wrong debt value in my calculation.
Lesson learned!Thanks for your quick reply!
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