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After implementing the proposal,
Coeden Co, asset beta estimate
1.1 × 0.5/(0.5 + 0.5 × 0.8) = 0.61After implementing the proposal wouldn’t the market value of debt decrease to $12.8m, instead of staying at $42.3m?
And since the market value of equity is still $42.7m, how can the ratio of 50:50 be used in the asset beta calculation?The asset beta is not affected by changes in the gearing. The equity beta will change, but the asset beta will remain the same.
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