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hello sir I have a very silly doubt which I dont seem to get at all
In this question for calculating cash flows when finding value of Fodder co , the digits dont seem to add to what is written in the answer scheme
like for year1 17115+5479-1534-213 is equal to 20847 but theyve written 3732what am I missing here??
also my other question is when calculating combined value of compny, what formula have they used for finding the equity beta of the combined co.
and also in the next step while finding (Ke) why are we not substrsctibg the Rf from Erm and then multiplying it with beta?
like shudnt it b like 4.5%+1.46(6%-4.5%)??In future you must say which exam the question was in – I can’t remember the name of every question in every exam 🙂
First question:
17115 is the revenue which is used to calculate the operating profit. It is not then added to the operating profit!!
The cash is 5479 – 1534 – 213 = 3,732
Second question:
To calculate the equity beta (given that we know the asset beta), we use the asset beta formula on the formula sheet ‘backwards’.
6% is not the market return (if it was then you would take 6% – 4.5%). The question says that 6% is the market risk premium (which is the market return less the risk free rate).
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