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I have doubt in part b where they asked about assumption that market value of equity will not change..
Its written in estimating ba for offering hotel services change in the business risk is not considered please justify this point as per my understanding ba is calculated after implementing the proposal …
Moreover how market value of equity is dependent on beta equity and cost of equity please explain
And how is retention ratio calculated in the same question
The market value of equity is the present value of future expected dividends discounted at the shareholders required rate of return.
The shareholders required rate of return depends on the riskiness of the shares, and the equity beta is the measure of how risky the shares are.
I do explain this at length in my free lectures.
The retention rate is 40% and is given in the question. Under the SOFP given in the question it states that Coeden Co has consistently used 40% of its free cash flow to equity on new investments while distributing the remaining 60% – if they distribute 60% then they are retained 40%.