Hi P4 guys,
Hope preparation is well, I have done good revision and set for the exam, need a clarification on beta, don't wanted to go wrong on this.
My question is
How to identify which beta to use, for APV its Beta Asset, for acquiring new company if it says in question business risk wont change do I need to do the exercise of degear and regear or just pick the beta from question and use in CAPM.
would be great if Tutor too guide me in this.
Many thanks
Kamaal
ACCA Forums
AFMBeta Identification ?
Ok can u plzzz tell me the process of ungearing the beta and regearing.
I know the process I j6st get confused on what values to use of equity and debt while degearing amd regearing.
Like wen ungearing u use the values of the similar company given in exam or ur ur own company
Plzzz help
11y ago#2When investing in a new project, we need to know the beta of the project.
We get this by finding a similar company, and using its asset beta. If we are given the equity beta of the similar company (which is usually the case) then we need to ungear it to get the asset beta using the gearing of the similar company.
Now we have the beta for our project.
To calculate a cost of equity we need to find an equity beta and we do this by using the gearing of our company.
If we are calculating APV, then the base case NPV is calculated as though the project is all equity financed in which case the equity beta will obviously be the same as the asset beta and we can use this to calculate the cost of equity.
Thank u
It helps alot :)
11y ago#4You are welcome :-)
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