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When to use MMs proposition 2 formula

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › When to use MMs proposition 2 formula

  • This topic has 1 reply, 2 voices, and was last updated 10 months ago by John Moffat.
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  • August 30, 2021 at 9:38 am #633495
    chris1337
    • Topics: 7
    • Replies: 2
    • ☆

    Good Morning

    I understand when we should use WACC, when we should ungear, regear and when to use APV. that all makes sense

    I also understand we can use CAPM and DVM to get the Ke. However, i dont really understand when we would use the lovely MM proposition 2 formula

    In your lectures you mentioned, its very rarely examined, and we can of course use CAPM as a way to go around it. however, how will i know the signs of when to use it?

    August 30, 2021 at 3:16 pm #633530
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49600
    • ☆☆☆☆☆

    It is when you need to find the geared or unguarded cost of equity but are not given the betas in the question. If you are given betas (as is usually in the case) then use them because although you could use the MM formula it is so much messier 🙂

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