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I cannot understand how the wacc of polynins co is calculated what i understand is we have to combine sportwear division with polynins co so we are required to find the wacc after demerger as the given line the shareholding for poynin co would be the same as for newimber co so i took E (market value of equity as) 585m
then taking market value of debt its given that polynin co has no long term debt then the wacc structure will be equal to ke but how to calculate Be for ke
As current Ba of newimber= Ba of clothing×60% + Ba of sportswear×40%
By placing the values i get Ba of sportwear as 0.935 what i thought is this Ba of sportswear shoud be regeared by using thr capital structure of polyins co to get Be and then placing that Be value in capm formula but they have directly placed the Ba value in Capm formula which does not gives me sense please help
As you have written, there is no debt in Polynin.
For any company, the only reason that Be is different from Ba is because of the gearing in the company.
If there is no gearing in the company then Be is equal to Ba.I explain this in the lectures (and you can check it yourself anyway – use the asset beta formula and see what happens when there is no debt 🙂 )
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