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in the open tuition notes, for chapter 21(CAPM n MM combined) Eg:2 (page 115), we calculate the discount rate/project specific discount rate by ungearing the B of a similar company via the asset B formula…
However i remember seeing a LSBF lecture where we ungeared the B of the similar company then and then re-geared it back for our company using that answer.. This value (regeared) was then used in the CAPM formula to give the project specific discount rate.. WHAT AM I MISSING?Difference arises b/w LSBf and OT becoz,
Here the question stated that they finance the project fully via Equity. not debt and equity. if this is the case then debt is not involved which means no financial risk, which suggest that no regearing is required.
U need to regear the beta(with our co’s details) only wen u finance thru debt.@safreena said:
Difference arises b/w LSBf and OT becoz,
Here the question stated that they finance the project fully via Equity. not debt and equity. if this is the case then debt is not involved which means no financial risk, which suggest that no regearing is required.
U need to regear the beta(with our co’s details) only wen u finance thru debt.Ohhh ok thanks, so am i safe to assume that, the OT way is more valid as in the f9 exam we will only be financing the project via equity only!?or can there be a situation where we finance fully or partly by debt!?
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