Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › Regear and Degear
- This topic has 4 replies, 4 voices, and was last updated 12 years ago by cuteleo110.
- AuthorPosts
- May 26, 2012 at 4:46 am #52879
hello….can u help on on when to regear and when to degear…am still confused about these?thanks
May 28, 2012 at 8:07 am #98238AnonymousInactive- Topics: 0
- Replies: 5
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In APV you simply need to take the asset beta for use in CAPM. For normal NPV, You need to degear (find asset beta) when comparing the project or private company with a proxy and regear (find equity beta with book values of company with new gearing). Use this beta with CAPM for Ke.
May 28, 2012 at 6:18 pm #98239AnonymousInactive- Topics: 0
- Replies: 8
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Just to say, you don’t use the book value, but market value to regear. You degear, when there is a different business risk.
May 30, 2012 at 5:28 am #98240Thanks
May 30, 2012 at 8:03 am #98241for APV:
Basic assumption to derive Base case NPV, is that Company is 100% equity financed that us Beta equity is used..Gearing and re gearing are used to incorporate the risk of the company to whom you are appraising..
We need to perform such calculations when company enters into diversified business.. as business changes obviously risk is also changed.. - AuthorPosts
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