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Q strayer(6/02)
In the bpp kit answer for part a) why havent they regeared the Asset beta with the gearing weight of the subject company?
They have only ungeared the industry beta and used that in the CAPM.And sir what is base case NPV?
It is because the question asks for the APV (adjusted present value).
With APV you calculate the NPV if it were all equity financed (the base case NPV) and then add on the tax benefit associated with the debt used to finance the project.
(Chapter 12 of our Course Notes and the lecture that goes with it, explains APV.)
So for discounting the cash flows for getting the APv,we only take the ungeared beta in the CAPM formula right?
Thank you Sir, I have spent hours to search why it used only ungeared beta, and your short answer ends my miserable search.
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