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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Asset beta or Equity beta in calculating Ke in CAPM?
Pls show me when we use asset beta or equity beta to calculate Ke in CAPM?
Trosoft (12/04) and Intergrand (12/02) use Asset beta to find Ke. Tks a lot!
The cost of equity is always – without exception – determined by the equity beta.
In order to find the equity beta, we usually have to determine the asset beta by looking at similar companies, and then find the equity beta using the asset beta formula on the formula sheet. The equity beta will only ever equal to asset beta if there is no gearing.
Trosoft specifically asks for an APV approach, and Intergrand effectively asks for it (because it says to discount at the all equity rate).
With APV we always calculate the base case NPV as though it is all equity funded, in which case (as I have written above) the equity beta will be equal to the asset beta).
It would seem that you have not watched my free lectures on APV (and CAPM) and I do suggest that you do.