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J12 Q4 a Tisca co

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › J12 Q4 a Tisca co

  • This topic has 3 replies, 2 voices, and was last updated 3 years ago by John Moffat.
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  • December 29, 2021 at 8:31 pm #645029
    humai
    Participant
    • Topics: 757
    • Replies: 248
    • ☆☆☆☆☆

    Sir in this case why they have multiplied Elfu Co component asset beta with 0.25 and Elfu Co asset beta of other activities with 0.75?

    December 30, 2021 at 8:12 am #645042
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    According to the question, 75% of Elfu’s equity is in ‘other activities’ and so 25% is in ‘component production’. It is being assumed sensibly that it is the equity that is carrying the risk.

    December 30, 2021 at 10:55 am #645060
    humai
    Participant
    • Topics: 757
    • Replies: 248
    • ☆☆☆☆☆

    Instead of equity can we also assume debt carrying the risk and so use 20% and 80%?

    December 30, 2021 at 4:14 pm #645080
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    No. In theory debt is risk free. It is equity that carries the risk.

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