[nandinigirish]

Hi AQ,

State your assumption clearly in exam saying why the option is not favourable.
Then show the calculation for excercise price which you choosed.

[nandinigirish]

Hi sorry, I could get same answer of your = 7.8%

[nandinigirish]

Hi,

When gearing increases the cost of equity increases you are correct.
But how r u incorporate this?

1. We need beta, to find cost of equity.
2. We need to know whether business risk is changed or remain same?
3.if business risk is changed then ungear the proxy’s beta or similar industry sector
And regear with your new financial /gearing ratio. With this geared beta you can find cost of equity.
4. If a new business changes only financial risk ( business risk remain same) then remember to use APV method. Used only ungeared beta.( 3rd step) to find cost pf equity.

Hope this will help.
Nandini

[nandinigirish]

Please let me know when to start group discussion, at present jobless any time would (morning/evening; weekends or weekdays ) suits me.

[nandinigirish]

Amazing, I been taught by 2 different teachers used complicated method. But this method of calculating confident level is superb. Thank you very much.

[Author]

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