for the implementation of the first director's proposal, when we calculate the asset beta of travel services, why do we use 30% to represent 0.65 the asset beta of Morada's maintenance service ?
Does it mean that book value of non current asset represents the asset beta ???
i do understand the calculation but just one doubt i do have is how 30% can represent 0.65.......
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MORADA CO (SEP/DEC16)
8y ago#1The question specifically says:
"The finance division has further assumed that the proportion of the book value of non-current assets invested in each business unit gives a fair representation of the size of each business unit within Morada Co."
For this question we therefore weight the individual asset betas by the proportions of the book value of non-current assets invested in each business unit.
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