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IN reference to QN. MERCURY in the revision kit:
1. how do they arrive at the 88 and 12 used as the values for equity and debt respectively in Jupiter and also the 75 and 25 used as value of equity and debt in financial sector calculations of asset beta.
2. And in regearing Mercury’s beta, where do they get the values for equity and debt used the 70 and 30?I have no idea which publisher’s revision kit you are using.
I assume you are referring to the question Mercury Training from the June 2008 exam.
The question says that the gearing of Jupiter is 12%, therefore for every 100 total market value, debt is 12 and equity is 88. (It is only the ratio that is needed for the formula – if you want to use the actual market values then for Jupiter, equity = 50M x $5.80, and debt will be 12/88 times the equity. But you will end up with exactly the same result for the beta.)
The same logic applies in the calculation of betas for the financial sector and for Mercury.
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