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Hi,
I am referring to the Neptune question from June 2008.
When de-gearing the Beta factor, I would use the left side of the asset beta formula i.e (Ve / Ve +Vd (1-t)) * Beta.
However in this question, the model answer uses the right hand side of the asset beta formula i.e. (Vd(1-t)/(ve + Vd (1-t)) * Beta.
Could you please explain why?
Thanks
This was the previous examiner who did do very odd things.
He has used the ‘left hand side’ of the formula, but he has rearranged it which is what makes it look strange. If you put the figures into the normal formula you will end up with the same answer 🙂
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