- This topic has 6 replies, 2 voices, and was last updated 6 years ago by
.
Viewing 7 posts - 1 through 7 (of 7 total)
- Posts
Dear Sir,
Why does the discount factor use the all-equity financed discount rate of Lintu, given that the project is financed entirely by debt?
Because the question asks for the APV. With APV we always discount at the all-equity rate, and then add on the tax benefit of the debt raised.
Oh yes I missed that, thank you
Also why does the all equity financed discount rate use asset beta instead of equity beta?
Is it because when assuming that only equity is used, the asset beta is equal to the equity beta?
Yes – the only reason the equity beta is usually greater than the asset beta is because of the gearing. If there is no gearing then the two are equal.
Viewing 7 posts - 1 through 7 (of 7 total)
- The topic ‘Jun 2014 Q2 Burung Cost of Capital’ is closed to new replies.