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Sir,
I refer to Bpp question 76(a) -Trosoft (SFM, 12/04).
In calculation of Cost of Equity using CAPM, why is it that value of Ba (1.035) was used directly without regearing it to Be?
(Keu= 4%+(9.5%-4%)1.035 = 9.69%).I’m kind of lost here.
Thanks
Because the question asks for the APV (adjust present value).
In which case we discount as though it were all equity financed, and if it is all equity financed then the equity beta is equal to the asset beta.
I suggest that you watch the free lecture on adjusted present values.
Dear Sir,
Can we quote to you questions on revision kits instead of ACCA past questions?
Yes, but give the name of the question (not just the number in the Revision Kit). I have the BPP kit and a previous edition of a Kaplan kit, so provided I can find the question then I will try and help.
(In your own interests, past exam questions are always the best ones – some of the questions made up by BPP and Kaplan are good, but some of the others are not good 🙂 )
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