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When do i use this? dec 2010 question 2 why uses ungeared cost of equity?why cant we just use capm?
June 2012 Q4a How to calculate the combined equity beta?
why do we still need to calculate WACC after capm?In December 2010 Q 2 (Fubuki) they are calculating the APV (because there is a large amount of debt finance being used). With APV we always discount as though it were all equity financed and then deal with the tax benefit of the debt separately.
In June 2012 Q4a we are not using APV and therefore need to discount at the WACC as usual. For the WACC we need the equity beta and to do this we need first to calculate the asset beta (using the fact that the total asset beta is the weighted average of the individual betas) and there use the formula again to calculate the relevant equity beta.
Our free lectures will help you with this (and with APV also).
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