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Hi there
Sorry it doesn’t say which paper it’s from
My question relates to part a about the gearing of the beta. When do we do this, why and what clues in the question that we will know that we need to rehear the beta
Thanks
Quoted betas are always share betas (unless you are told differently in the question)
The only beta available is that of a comparable business. A comparable business will have the same business risk and therefore the same asset beta, but the share beta will depend on the level of gearing and the comparable business has different gearing.
So we need to ungear to calculate the asset beta, and then regear using our companies gearing to get a share beta for our company.
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