CAPM

It would help if you said which formula!! There are two formulae relating to betas on the formula sheet. If you are talking about the basic CAPM formula, then the shareholders required return (and cost of equity) is always calculated using the equity beta. If you are taking about the asset beta formula, then if we know the equity beta we can calculate the asset beta, and vice versa.

I remember this question. Its in bpp revision kit I guess. Other questions use equity bets to come to ke but this question used asset beta.

Because the are calculating the cost of equity without gearing (it is an APV question and with APV the base case NPV is calculated as though it were all equity financed - the effect of the gearing is dealt with separately). If it is all equity financed then the equity beta equals the asset beta (and the answer actually said this immediately below the calculation).

You are welcome :-)