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Go back to the Tampem question, I still don’t get why not we use the 60% equity and 40% debt as our Ve and Vd?
Vd = market value debt; Ve = market value equity.
And the question says the investment will change to 60% equity, 40% debt by
market values as per note(iii)
So I thought the 60% equity an d 40% debt should use for Ve and Vd.So sorry this is my first time posting a question here. I will do that next time.
For the question, why do we use the 50% equity 50% debt but not the 60% equity and 40% debt in note(iii).
And another question is that when we finding the ungeared cost of equity we use the Asset Beta Formula, isn’t the Ve and Vd we substitute into the formula are from the proxy company one? But this question does not provide any information about a proxy company.