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Question is Coeden Co (12/12)
1-The cost of equity is calculated by using Equity Beta 1.1, according to me by using the equity beta we get cost of capital(equity+ debt) he is calculating cost of equity by using equity beta?2-While calculating the cost of equity after taking the affect of proposal the asset beta is calculated using the ratio of Equity and Debt which do not include the affect of change in value of debt i.e proposal affect is not taken, according to me it should have taken the new value of debts i.e $12808.
3- In the formula ke=kei +(1-T)(kei-kd)Vd/Ve. The kd(cost of debt) is post or pre tax?
4-One last thing it might seem silly, In the Question Burung co(6/14) where it is given or how do we know that the tax is paid in the same year i.e not in arrears., i didnt find that.
1. The equity beta always gives the cost of equity (not the WACC – to get the WACC you then need to weight the cost of equity and cost of debt as normal).
2. The asset beta is calculated from the current equity beta, using the current gearing. (after the gearing changes, then equity beta will change as well because the level of gearing risk is different)
3. Kd is pre-tax – it is the return to investors.
4. You have not noticed the very last line of the question (just before the requirements) 🙂
It really helps me particularly 1 & 2. and yes i just see that line of tax, i was focusing on the information given in bullets.
Thank you 🙂
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