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KAPLAN STUDY TEXT WORKED EXAMPLE PAGE 476 CHAPTER 13

Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › KAPLAN STUDY TEXT WORKED EXAMPLE PAGE 476 CHAPTER 13

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by jcbacca.
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    Posts
  • April 1, 2019 at 10:28 pm #511006
    misbahkiran
    Participant
    • Topics: 109
    • Replies: 194
    • ☆☆☆

    i am confused about asset beta and equity beta calculation..

    i saw lecture and the steps i followed was to un geared asset beta of webb co which gave me answer of 1.28 (80/100*1.6) assume that tax rate is only for combined entity only as mentioned in question.

    then i calculated equity beta which turned out to be 450/500*Be=1.28
    Be=1.42

    and then Ke =.03+1.42(.058-.03)=.811

    then WACC calculated = 450/500*.811+50/500*.05*.7=.7335

    so cash flow of combined will be discounted at this rate or im totally wrong in my concept and i need to follow kaplan…

    free cash flow of webb co
    10m/.7335=13.63

    April 4, 2019 at 4:33 pm #511211
    jcbacca
    Member
    • Topics: 0
    • Replies: 20
    • ☆

    Hi, dont have time to truly try to understand your question. But judging from the answer using CAPM you may have put in the numbers incorrectly in the calculator. 81% should not be returned from that. Answer should be below 8% = 0.08

    Even if it was correct, this is an extremely high cost and in practice i dont think it will be sustainable.

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