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Dear Sir John, I am not clear about how to calculate WACC Poynins Co. I hv confusion about the calculation of Be poynins Co ( 0.935). Please clarify it. Thanks
Have you watched my free lectures on CAPM, because as I explain in the lectures the beta when two streams with different risks are combined it the weighted average of the betas of the two stream individually.
Here, we know that the Ba of Newimber at the moment is 1.10.
Also, we know that the Ba of the clothing division is 1.21 and that the clothing division is 60% and sportswear is 40%.Therefore (0.6 x 1.21) + (0.4 x Ba of sportswear) = 1.10
If you re-arrange the equation you end up with the Ba of sportswear as being 0.935.
Given that Poynins will have no long term debt, the Be will be the same as the Ba.
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