cost of equity can be found and can be geared or ungeared with two ways:
1- Modigliani and Miller Proposition 2 (with tax) formula
2- CAPM and betas
i want to ask how we know that which formula we can use in a given scenario of exam???
in which situation we can use CAPM and In which situation we can use
Modigliani and Miller Proposition 2 (with tax) to find ke ( cost of equity)
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cost of equity
9y ago#1Both will result in exactly the same answer (because one comes from the other).
Usually CAPM and betas will be the easiest and quickest way, and the way expected in the exam, but it depends on how the question is worded,
it means , according to information provided in the exam question we can use any one of CAPM or Modigliani's formula???
9y ago#3Correct (although it is unusual to need to use the M&M formula)
Thanks alot sir...U solved my big confusion
9y ago#5You are welcome :-)
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