p4 June 12 4a

hello john

please help me with two questions below:

1) roundings: i am getting slightly different answers to the examiner due to roundings. for example examiner is getting asset beta of 1.64 and i am getting 1.65 by doing the same calculation. is there any issue with this? i hope there is no issue as long as workings are fine and i am not going to be penalized for rounding errors. is that correct?

2) p4 June 12 4a involves calculating asset beta of the specific component of the business which is then used for re gearing. since the beta for the business is not given so the examiner first calculated asset betas for other component plus the whole of the company and work out the component that we are looking for.

however instead of doing this cant we just calculate equity beta directly of the specific component we are looking for and ungear that?

say equity beta of elfu is 1.40 and we know the other component equity beta is 1.25.

we also know that other component is 0.75 of the business so 1.40 = 1.25*0.75 + 0.25x

x = 1.85

now use this 1.85 to re gear 1.85 * 480 * 0.75 / 480 + (96*0.2*0.75) = 1.65

1.65 is the asset beta

is that correct?