- January 25, 2022 at 10:05 pm #647464humaiParticipant
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Sir here in examiner answer 1 of the assumption written is that ,
Liyu Co’s and Sanwenyu Co’s asset betas are calculated by degearing each company’s equity beta to eliminate the company specific financial risk. The asset betas of both companies represent just the business risk element. It is assumed that Sanwenyu Co’s asset beta represents the business risk of the wind farm business and Liyu Co’s asset beta represents the
business risks of both the wind farm and the environmentally friendly motor scooter businesses. From these it is assumed that the asset beta, representing a suitable proxy for the business risk of environmentally friendly motor scooters, can be computed and used to estimate the all-equity financed discount rate.
If instead of above, I just write the following then would it be fine:
It is assumed that Liyu Co’s asset beta of motor scooters represents business risk of the project since both companies ( Liyu Co and Zhichi co) are in the same industry therefore they face the same business riskJanuary 26, 2022 at 11:59 am #647512John MoffatKeymaster
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Yes – that is fine.
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