The fact is they will mentioned whether the combined beta asset if needs to be on the weighted average value of the equity which is not done in these questions or else it will be assumed that through gearing and re gearing process the the proxy beta asset can be reflected on the own entity capital structure in order to find the fresh beta equity.
@benedictmangwato292 Because the "Combined value" is the firm value (debt + equity). So to find the value of equity, debt should be reduced from Firm value.
The fact is they will mentioned whether the combined beta asset if needs to be on the weighted average value of the equity which is not done in these questions or else it will be assumed that through gearing and re gearing process the the proxy beta asset can be reflected on the own entity capital structure in order to find the fresh beta equity.
I’m sorry but this isn’t good enough quality for ACCA.
Agreed.
Thank you very simplified and clear. Excellent for beginners
nice explanation
What is denominator 20 on 12.17 on finding new beta equity?
15:15 why are we removing our own debt?
@benedictmangwato292 Because the "Combined value" is the firm value (debt + equity). So to find the value of equity, debt should be reduced from Firm value.
But why doesn't it include the debt used to fund the transaction?@@chrishan2977
In finding the combined Beta equity the value of equity used in the denominator was 20 instead of 300, resulting in a wrong Be used in the CAPM.
that is a misprint, the Be is correct itself, please calculate for yourself using MVe to be 300 you will get 2.93
why isn't the debt used to fund the transaction (the 130m) included in the reduction to come to combined FCFE?
I believe the debt is actually being reduced in the form of the bid price that is being paid ( the 130m in red color).