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investment appraisal- asset beta question

Forums › ACCA Forums › ACCA FM Financial Management Forums › investment appraisal- asset beta question

  • This topic has 10 replies, 7 voices, and was last updated 13 years ago by John Moffat.
Viewing 11 posts - 1 through 11 (of 11 total)
  • Author
    Posts
  • December 4, 2011 at 2:46 pm #50898
    mosingh
    Member
    • Topics: 15
    • Replies: 8
    • ☆

    HI
    Can someone give a good asset beta question to try as not come across many examples of these and i see its mentioned on the recommendations list for Dec 2011?

    December 5, 2011 at 11:58 am #90568
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 52
    • ☆☆

    H plc is a hot air balloon manufacturer whose equity: debt ratio is 5:2. The corporate debt, which is assumed to be risk free, yields 11% before tax. The beta value of the company’s equity is 1.1. The average return on the stock market is 16%. The corporation tax rate is 31%.

    The company is considering a waterbed-manufacturing project. S plc is a waterbed- manufacturing company. It has an equity beta of 1.59 and a E:D ratio of 2:1. H plc maintains its existing capital structure after the implementation of the new project.

    What would be a suitable cost of capital to apply to the project?

    December 5, 2011 at 12:24 pm #90569
    accastudent110
    Member
    • Topics: 6
    • Replies: 36
    • ☆

    Hi, is the answer to this 18.6%

    Also, what does it mean that the beta value of the company’s equity is 1.1?
    Is it used in the calculation?

    December 6, 2011 at 10:53 am #90570
    hhhmmm
    Member
    • Topics: 4
    • Replies: 23
    • ☆

    Ungear the proxy to get an asset beta of 1.1777
    Regear the original to get a beta of 1.507
    Fit this into the CAPM formula to get 20.81%?????

    December 8, 2011 at 12:51 am #90571
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 1
    • ☆

    Ke = 18.42%

    February 16, 2012 at 7:22 am #90572
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 5
    • ☆

    yes this is the answer

    February 16, 2012 at 7:22 am #90573
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 5
    • ☆

    yes this is the answer

    February 16, 2012 at 7:22 am #90574
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 5
    • ☆

    yes this is the answer

    February 16, 2012 at 7:22 am #90575
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 5
    • ☆

    yes this is the answer

    February 16, 2012 at 7:35 am #90576
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 5
    • ☆

    can any please help me what is the meaning of with recouse and without recourse in the factoring problem in simple wards.

    February 16, 2012 at 8:55 am #90577
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    If factoring is without recourse (or non-recourse) it means that the company will not have any bad debts – the factor guarantees full payment to the company and it is the factor who suffers any bad debts.
    If it is with recourse, then the company does suffer any bad debts and only gets the cash that is actually collected.

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