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In MJ18 Tippletine, to calculate cost of capital the examiner use formula: Ke = Kei +(1-t) (Kei -Kd) Vd/Ve rather than use the formular of WACC.
Please explain why. Thank youIn MJ21 Robson, to calculate cost of equity, Ke = Rf + Be (Rm-Rf).
Why Be = Ba = 1.222 in this case ?Issue cost
Whenever there is a sentence in the question: Issuse costs are payable out of available cash reserves, It is no need to gross up the fund to calculate issue cost ?Tippletine:
We are not calculating the cost of capital. Because we are calculating the APV, we need the ungeared cost of equity, which is calculatedlated using the formula.
Robson:
Again, we are calculated the APV and therefore discount at the cost os equity as if no gearing.
If there is no gearing then the equity beta will equal the asset beta (because there is no gearing risk).
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