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cost of capital

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › cost of capital

  • This topic has 1 reply, 2 voices, and was last updated 9 years ago by John Moffat.
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  • June 6, 2016 at 9:46 pm #320074
    Adnan Yousuf
    Member
    • Topics: 6
    • Replies: 28
    • ☆

    when MM proposition 2 used…..

    June 7, 2016 at 8:49 am #320208
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    When you know the cost of equity with no gearing and you want to calculate what it will be with gearing (or vice versa).

    You can always calculate by gearing or ungearing the beta using the asset beta formula. But if you aren’t given the beta than it is a little bit faster to use the MM2 formula (rather than have to calculate the beta yourself first and then use the asset beta formula).

    From memory it has only been useful one time in the exam 🙂

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