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Hi John,
Thank you for all the teachings.
RE – Kingtim Co, (Sept/Dec 20)
I am struggling to understand why a weighted asset beta was calculated to get the equity beta of the new project; I thought it the 0.88 asset beta should suffice to regear into the capital structure of Kingtim.
could you kindly explain the rationale behind the weighted average asset beta.
Thank you.
They are currently invested in garden centres (which have an asset beta of 0.72) and are planning to also invest in outdoor shops which have a beta of 0.88.
As I explain in my free lectures on CAPM, if two streams with different betas are combined then the overall beta is the weighted average of the individual betas.
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