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Sir, the formula to calculate ungeared beta is quite clear but I am not sure which kind of Ve and Vd to be used. In a question I met, it provides 2 data: historical average value of debt and value of equity in the period which beta of company is calculated from (say 5 years) AND current value of debt and equity. It only requires to calculate asset beta. So which data we should use?
PS: I am following the logic that the equity beta is always the historical beta (as we calculate it from historical data), hence this beta reflects business risk and financial risk of gearing in the past. As the result, to convert geared beta to ungeared beta we may use historical value of debt, equity.
On what you have written, using the historical averages would be the more sensible.
However, in the exam what you write is not a problem – the wording of the question (and the information available) makes it clear what values to use.
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