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Good Evening
lets suppose we are given equity beta, debt beta and D/E ratio and the tax rate for a company. will the following be correct or plausible or acceptable:
(a)
asset beta = the big ugly exam formula which uses asset beta and debt beta
Ke1 = rf + asset beta x (rm-rf) – this wd give the ungeared cost of equity
Kd = rf + debt beta x (rm-rf)
Ke = rf + equity beta x (rm-rf) – this wd give the cost of equity which takes gearing in account
thank uthank u sir!
i have a related question:
the formula
Ke=Ke1 + (1-T)(Ke1-Ke)(Vd/Ve) – ( Ugly 2 formula)
1. the Ke1 calculated in the above post can be used to give the Ke using Ugly 2 formula?
2. and we wd get the same approximate answer if we used CAPM WITH EQUITY BETA?
3. and we can also calculate Ke1, using Ugly 2, having calculated Ke using CAPM?
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