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Greetings Dear Sir,
I hope you are in good health.
I am finding it difficult to understand how Ke is being calculated in this particular question.
Examiner Calculation are as Follows:
ke= 12.46%+ [0.82*(12.46%-4.5%)*(0.2/0.8)]
ke=14.09%We use to calculate Ke via CAPM usually most of time but i am unable to understand the
examiner calculations of Ke.Kindly ellabotate it further.
Given that this question does not give you the beta, but does give the ungeared cost of equity in Sidero (a large mining and shipping company), the answer has used the M&M Proposition 2 formula (as given on the formula sheet provided in the exam) to calculate the cost of equity relevant for Chrysos.
My free lectures do explain how to use this formula.
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