Sir, Can you please explain this OpenTuition Mock test question? AJT Co has gearing ratio (D/E+D) of 30%. Corporation tax is 25%. Asset beta is 1.2 Risk free return is 5% and Market return is 12%
You are given an Asset beta. You need to covert it to the share beta as follows. Asset beta = Ve/Ve+Vd(1-T) *Equity beta 1.2 = 100/(100+30*0.7)*Ke Be = 1.47