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Sir i want to ask as in recommendations it is given that after implementing second director proposal results in a lower return on investment and unchanged cost of capital
Please guide how do we give this statement i know that cost of capital is wacc but what is return on investment is it cost of equity or cost of debt ?
Also please explain the assumption that asset beta of morada co is weighted average of the asset betas of travel services and maintenance unitsThe cost of capital is indeed the WACC. The return on investment is the return that the company is getting on the money the company is investing.
With regard to the asset beta, it is always the case that if two streams with different asset betas (i.e. different risks) are combined, then the overall beta will be the weighted average of the two individual betas. I do explain this in my free lectures on CAPM.
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