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Question 2(b)
The model answer given:
The retail asset beta can then be calculated from the weighted average of…………
1.646 = 4,338/6,800 x B(R) + 2,462/6,800 x 0.625
Firstly, how to get the figure/divide 6,800 into of 4,338 and 2,462?
Secondly, how to get the 0.625?On the latter part, similarly for the “asset beta of reconstructed firm”, how to proportionate 6,800 into 5,569 and 1,231?
The total market value is 6800. (sh cap 425 x 4 (25c shares) x $4 (mkt value per share).
Property is 2297 (land & buildings) + 165 (billing under construction) = 2462
(Retail is the difference).0.625 is the asset beta of property. This is calculated by ungearing the equity beta of ‘representative portfolio of commercial property companies’ using their gearing rato of 50:50. Using the asset beta formula.
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