june 12 question 4 tisa co.

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May 31, 2014 at 10:05 pm #172230
sanjeeb
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Hi,

how it calculated the below in model answer:

total asset beta= component asset beta x 0.25+ other activity asset beta x 0.75.

where did the 0.25 (&0.75) came from as I could not figure out in the question.

thank you in advance.
June 1, 2014 at 1:27 pm #172339
John Moffat
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It is because 75% of their equity is invested in other activities (and therefore 25% in component production).
The overall asset beta is the weighted average of the individual asset betas.
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