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Dear Sir,
In calculating the MVd of the company, why wasn’t the effective rate of the 6,2% bonds calculated and use that (IRR) to find the MVd of the debt , but instead the cost of debt of the company was used? Is it because the entire NCL consist of only the 6,2% hence by having the kd we assume it’s the effective rate with which to calculate the MVd? (effectively the MV of the 6,2% bonds since no other debt instruments).
But you can’t calculate an ‘effective rate’ (by which I assume you mean the investors required rate of return) as an IRR unless you already know the market value (which we don’t!).
The last two paragraphs of the question make it clear that the rate to use is risk free + 240 basis points, which is therefor 3.8% + 2.4% = 6.2%
Hi sir,
Can you please explain what is the logic behind the calculation of asset beta of travel services? Why they decrease company asset beta by 30% of asset beta of maintainance and then that together is only 70% of asset beta of travel services (divided by 70%)?
Sorry, I just got it. Asset beta of the company is weihted average of those two parts, and maintainance was 30% of the company (looking at the proportion of non current assets).
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