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Dear sir…in questions like Fubuki and strayer the examiner have just calculated Ke using Asset beta and didn’t not re-geared it, is that ok ? If so, why ? please explain
I really do suggest that you watch our lectures on this!
With APV the base case present value is calculated as if it were all equity financed.
If they are all equity financed then the equity beta is the same as the asset beta.
Using the asset beta to calculate the cost of equity is giving the cost of equity if there was no gearing i.e. all equity financed.
Thanks alot sir, truly understood.
You are welcome 🙂