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Tippletine Co – cost of capital calculation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Tippletine Co – cost of capital calculation

  • This topic has 3 replies, 2 voices, and was last updated 11 months ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • July 19, 2024 at 6:23 pm #708689
    Aleksandra19900107
    Participant
    • Topics: 22
    • Replies: 28
    • ☆☆

    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!

    July 20, 2024 at 9:49 am #708696
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    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%.

    July 21, 2024 at 3:07 pm #708731
    Aleksandra19900107
    Participant
    • Topics: 22
    • Replies: 28
    • ☆☆

    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.

    July 22, 2024 at 8:17 am #708753
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    That is true, and you are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Tippletine Co – cost of capital calculation’ is closed to new replies.

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