- This topic has 1 reply, 2 voices, and was last updated 9 years ago by
.
- Posts
As we all know that when a Co intends to enter into a new industry we are required to calculate the risk adjusted WACC. For this purpose we calculate the Beta Asset of that industry and then regear it with our Co’s financial gearing to calculate the Risk adjusted Beta Equity in order to compute the new Ke and ultimately WACC.
Beta Asset represents the Business Risk faced by the Co. in that industry. My query is that why don’t we calculate the Proxy Beta Asset as the Co. is already doing business in some other industry. So it must be facing some Business Risk in that industry and is bound to have a Beta Asset of its existing industry.We calculate the asset beta of a company in the same industry as the new project.
This is the proxy asset beta, and so I am not really clear what you are asking.
What you are suggesting in your second paragraph is what we actually do (and is what you have written in your first paragraph).
- You must be logged in to reply to this topic.