Kaplan Exam Kit Q41 Tisa — OpenTuition Forums

Ssolrac10y ago

Hi Tutor, Working through this question and i don't quite understand how its been regeared to arrive at Tisa's equity beta of 1.879. It looks like the beta asset formula has been inverted to Be x (Ve + Vd(1-T)/Ve. I'd be grateful if you could shed a bit more light on this for me please. Am i missing something? Thanks

John MoffatTutor10y ago#1

I am sorry, but I do not have the Kaplan Exam Kit (I have managed to find the question, but not Kaplan's answer). However, in order to calculate the equity beta for Tisa's new investment you need to take the equity beta for Elfu, exclude the other non-component activities, and ungear it (using Elfy's gearing) to get the asset beta for these components. Then you need to regear this asset beta using Tisa's gearing in order to get the equity beta to apply. What you have written is not correct Assuming (as usual) that the debt beta is zero, then the equity beta = Ba x (Ve + Vd (1-T))/Ve. (It is the normal asset beta formula on the formula sheet, rearranged). I think it would help you to watch our free lectures on this.

Ssolrac10y ago#2

Hi John, Thanks for this. I've realised where i went wrong from reading your response. I did not write out my formula correctly. I hope i don't this little costly mistake in the exam. Your lectures have helped a great lot. Thanks

John MoffatTutor10y ago#3

I am pleased that you are now clear about it :-)

Sign into reply to this topic.