Hi Got a question about the 2009 Dec Q2: in calculating the cost of equity for Anchorage, how the 3.1% is calculated. since we calculated the cost of equity for Anchorage is 7.224% why we use the CAPM model to get 6.668% and use this to calculated the WACC. Can’t we just use the 7.224%? what is the difference between 7.224% and 6.668%?
Also the risk premium of 2.224% is based on the market risk of Anchorage retail which is the retail market. Why we use this as risk premium to calculate the cost of equity for Poplar finance as they are not in the same industry and the risk premium is not the same.
Sorry for asking so many questions. This question really confused me.