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Ask the Tutor ACCA AFM

June 2008 Mercury

Sstacie39511y ago
Hi sir, Can i clarify with you the reason we need to calculate tax adjusted gearing...? Thanks...
John MoffatJohn MoffatTutor11y ago#1
We need to use the asset beta formula to be able to adjust the equity beta for the different levels of gearing. The old examiner decided to call the Ve/(Ve+Vd(1-T)) in the formula the 'tax adjusted gearing' but there is certainly no need to call it that. It is simply using the asset beta formula as normal.
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