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Hello
The answer appears to be wrong in the answer sheet. They seem to have done Ve+Vd(1-t)/Ve instead of Ve/Ve+Vd(1-t) and the correct equity beta should be .897 and Ke should be 8.3??????
Am I correct? Or did i miss another way to work it out?
No – the answer is correct (and BPP have copied it from the examiners own answer).
To calculate the equity beta you need to use the asset beta formula ‘backwards’.
And think about it – the equity beta will always be higher than the asset beta if there is gearing, because the gearing makes the shares more risky.
Hello sir,
For free cash flow in part a) why didnt we deduct tax (20%) after adding fcf and synergy?
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