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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…….
The 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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