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In the last example in CAMP lecture (part 2) with X plc and Y plc, I understand, that we un-gear the Beta of the similar company to the potential new operation of X plc.
The gearing ratio of X plc is 0,4 and I do not understand why we use 50/50 ratio while regearing and calculating new project’s equity Beta.
I thought that we would use the company X equity to debt ratio for the project andm apply it to the calculated asset Beta.
Can you please indicate what is wrong in my reasoning? Thanks.
It is because part (b) of the question specifically asks for the situation if the project is to be financed 50% equity and 50% debt.
Oh… apologies for a silly question, I did not see requirements in online version of notes, once downloaded, everything is clear.
Thank you very much for your lectures and help.
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