31 fubuki

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February 2, 2017 at 10:35 am #370742
shilpamary
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q31 fubuki bpp revision kit . discount factor is found by formulae equity (with gearing ) they have said asset beta can be assessed then find ke . but what would be beta equity that i can apply on formula of beta asset ?
February 2, 2017 at 4:14 pm #370785
John Moffat
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You know that the cost of equity is 14%, and you know that the market risk premium is 4%.
So you can use the basic CAPM formula backwards to calculate the equity beta.
February 3, 2017 at 4:54 am #370855
shilpamary
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I did that as given in tutorial note using capm backwards we get beta equity then use it in beta asset to get ba,apply beta asset in capm to find cost of equity? and yes i am getting 10% as return .Is it not a requirement to use only beta equity in capm? i got 10 % as return when beta asset applied in capm not beta equity :/
February 3, 2017 at 8:54 am #370882
John Moffat
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10% is the ungeared cost of equity (i.e. assuming no gearing and therefore based on the asset beta), and this is what we need when calculating the adjusted present value.
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