[patrick]

Beta Asset = business risk. Formula on exam sheet is in terms of Beta Asset. I.e. ungearing. Ba=Be x E/E+D(1-t). If you want to regear, then you are looking for Be. Be = Ba x E +D(1-t)/E

[patrick]

Meant CASs not VAs

[patrick]

When doing bond valuation, ignore tax, even if given in the question.

[patrick]

What was Question 4 about???

[patrick]

re -order level should be enough to sustain the business through the 30 days waiting time (lead time).

30 days = one month.

and we need 7,500 units per month. so answer is 7,500 units

[patrick]

Romage current business = property + manufacturing

Romage wants to split: property only Manufacturing only

the business risk of property + Manufacturing will not be the same as business risk of property only or manufacturing only. the Beta assets will be different, capital structure also likely to change (so financial risk will change). so have to recalculate Ke (ungearing and regearing) and a risk adjusted WACC.

[Author]

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