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WACC Tisa Co

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › WACC Tisa Co

  • This topic has 3 replies, 2 voices, and was last updated 2 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 3, 2022 at 9:15 am #670575
    abokor
    Participant
    • Topics: 82
    • Replies: 114
    • ☆☆

    For model answer in Tisa Co, Examiner has used the flowing steps to find the asset beta of the component.
    1. Find Elfu Co portfolio asset beta
    2. Find Elfu Co asset beta of other activitie,
    3. Find component asset beta using weighting of 25% and 75%
    4.Component equity Beta
    5.Find Ke

    I feel like there is short cut as flows

    1. Find component Equity beta using weighting of 25% and 75%
    2. Un-gear component Equity beta to find Asset beta of the component
    3. Re-gear Asset beta of the component to find the equity beta of the component
    4. Find Ke

    However i have ended up different component equity beta of 1.850 and Ke of 14.23% compared to model answer of 1.879 and 14.4%

    November 3, 2022 at 9:50 am #670583
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54695
    • ☆☆☆☆☆

    You cannot take your approach because the total equity beta is dependent on both the risk of the two components and the level of gearing.

    November 3, 2022 at 10:04 am #670584
    abokor
    Participant
    • Topics: 82
    • Replies: 114
    • ☆☆

    Therefore we should always weight the Asset betas and not Equity Betas Right

    November 4, 2022 at 8:33 am #670647
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54695
    • ☆☆☆☆☆

    Correct 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘WACC Tisa Co’ is closed to new replies.

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