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Hi guys,
In the BBP Reversion Question Case 28 Strayer (Page. 22), why in the answer the BETA of the project is just 0.706?
From my understanding, 0.706 is just the asset BETA of the Printing Project. Since the company taking loan for partially financing the project, therefore the total project BETA should be geared BETA, which is ((16+9*0.7)/16)*0.706, or 0.985. After that, we use this BETA (0.985) in CAPM to work out the required rate of return as the discount rate.
Am I correct?
Sorry, problem solved. when doing the APV, we should use the ungeared cost of capital as discount rate. THANKS!
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