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Dear Sirs,
for the case with Tippletine Co. I was calculating the ungeared cost of capital using CAPM and came to the rate 8,129%.
In the answers they calculated using Modigliani and Miller formula and came to 9%.
I don’t recall exactly, but I beliebe it was mentioned in the video that both can be used?
Is it also the case for this Tippletine Co? Could I have used CAPM here?
Thank you!
You could use CAPM (although it would take longer).
You would need to calculate the current (equity) beta, then ungear it to get the asset beta, and then use this to get the ungeared cost of equity. However I don’t know how you arrived at 8.129%.
Thank you Mr. Moffat!
I have just noticed that a rearranged M&M formula should be included into the formula sheet from September onwards.
But the key thing I got that both can be equally used.
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