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Hello
I got completely lost with CAMP. The closer to the exam date I know less and less ;-). I would be grateful if you could help me out.
Equation is: E(ri) = Rf + Beta [E (rm) – Rf].
1. If I use as Beta the Equity/Geard Beta, I will get cost of capital for the all financing sources (debt and equity). Correct?
2. If 1. is correct does it mean that such ratio is equal to WACC?
3. Can I use in equation Asset Beta? If yes, will I get cost of equity only ?Thank you in advance for your help.
Regards
Przemek1. No. If you use the equity beta then the formula gives you the cost of equity.
2. No. The cost of equity is just part of the WACC
3. If you use the asset beta then you will get the cost of equity if the project were entirely equity financed (which is most relevant when asked to calculate the adjusted present value).- Topics: 5
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Thank you!
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