VT beta asset for retail–Q2 Jun 2009

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May 21, 2011 at 2:47 am #48521
pepsi1020
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Hi tutor:
In examiner’s answer, calculating beta asset for retail division, market value of equity is used as VT. whether in there, VT should be equate to market value of equity and debt as market value of retail and property is funded by equity and debt?
May 21, 2011 at 2:31 pm #81968
John Moffat
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Hi

It is because the question says to assume that the share price remains unchanged (even though they are repaying the debt).
May 21, 2011 at 4:19 pm #81969
pepsi1020
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yeah, share price unchanged just indicates that the equity value was unchanged. As retail and property divisions are funded by equity funds and debt funds, market value of retail and property whether should equate market value of shares and debts?
May 29, 2011 at 6:20 pm #81970
John Moffat
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But it is the market value of the equity that is used in the formula. In real life it would probably change (partly because of what you say) but since he said it remained unchanged there is no choice but to use it.
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