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Hi John,
Q1 of pilot paper states:
“Tramont Co’s quoted beta is 1.17…………it is estimated that the beta applicable to the project if it is all-equity financed will be 0.4 more than the current all-equity financed beta of Tramont Co”.
The resolution considers that 1.17 is equity beta and that beta applicable for the project is asset beta. My thought was exactly the other way around.
Could you please explain how 1.17 is not asset beta and beta applicable for the project is not equity beta in this question?
As I do state in my free lectures, when betas are quoted in the press etc., they are always the betas of the shares i.e. the equity betas.
For APV we always discount as though the project were all equity financed. If it is all equity financed then the equity beta for the project will be the same as the asset beta for the project – the only reason for the two betas ever being different it when there is gearing involved.
Have you watched my free lectures on CAPM?
Hi John,
Please tell me how moving the production to X-IT in Gamala would result in further risk diversification?
- The topic ‘TRAMONT Co (Pilot 2012) – Q1: Asset Beta (Ba) vs Equity Beta (Be)’ is closed to new replies.