BBS stores (6/09)

[chandhini]

Sir, part b of this question is really making me lose my sanity!

I don’t understand how the asset beta of the existing business has been computed. Where did the fugure of 6800 come from? Also, how is the asset beta of the property div 0.625(I got 0.758 as the answer)?! Further, we have not been told what percentage of the total firm each of the division represents, so how will we unbundle the firm’s equity beta into those of the two divisions?

Is there a lecture on this question sir?

Really indebted to you for all your invaluable help.

[chandhini]

I just realized that the gearing of the property division has already been adjusted for tax, and that’s how the asset beta is 0.625.
But sir, are we considering the market value of equity of the BBS of 6800m to be made up of 2462m and 4338m in respect of the property and retail division? Why so?

[John Moffat]

The value of the property is given in the question (Land & Buildings 2297 plus Assets under construction 165). Retail is the balance of the total value.

[Author]

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