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Hello Sir,
In chapter 16, e.g 4, the equity beta is calculated as 1.16 but I don’t get this answer. Why is it not 170 + 80 then divide by 225 + 56. This is the combined equity and debt of Nairobi and Delhi.
This is making no sense to me, please help.
Thanks
MarieThe equity of Nairobi will remain at 170 – there is no mention of raising more equity. But they are raising more debt of 80 and using this to buy Delhi and Delhi’s equity disappears.
(But as is written at the bottom of the answer, because the equity of Nairobi would actually increase a little because of the gain the process would really have to keep being repeated, but you would not be required to do that in the exam)
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