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How do we calculate cost of equity which could be used in appraisina new project?
Subject f9 cost of capital. Using capm.If the question wants you to calculate it using CAPM, then you use the formula on the formula sheet!!
Cost of equity = Rf + beta ( Rm – Rf)
This is all covered (with lots of examples) in our free lectures on CAPM, and I cannot possible type out all of the lectures here 🙂
Actually Sir , there is a question in kaplan Fence Co june14 modified. Part b. If u could have a look.
I don’t have the Kaplan Kit, but I have the actual exam question.
That is CAPM – and I wrote before how to calculate the cost of equity using CAPM.
This is normal CAPM except that we need to calculate the beta of the equity before we can use it in the formula to calculate the cost of equity.
We do it by finding the asset beta for a company in the same business as the project, and then using the asset beta formula again ‘backwards’ to calculate an equity beta for our project.
Ungearing and regearing the beta is all covered in detail (with examples) in our free lectures, and I really cannot possibly type out the whole lecture here.
No Sir you do not need to type all lectures. Thanks . Thats a more clear now. You are the best
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