Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › cost of equity
- This topic has 5 replies, 2 voices, and was last updated 7 years ago by John Moffat.
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- November 27, 2016 at 3:09 pm #351897
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 betasi 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)November 27, 2016 at 6:02 pm #351939Both 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,
November 27, 2016 at 6:10 pm #351948it means , according to information provided in the exam question we can use any one of CAPM or Modigliani’s formula???
November 28, 2016 at 6:16 am #352048Correct (although it is unusual to need to use the M&M formula)
November 28, 2016 at 8:22 am #352105Thanks alot sir…U solved my big confusion
November 28, 2016 at 2:11 pm #352164You are welcome 🙂
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