Page 49 - 5.2 i. Manac Finance ITC Summarised Notes
P. 49

COST OF CAPITAL




            Ordinary equity (ke)








            Capital Asset Pricing Model (CAPM):


            Equity vs. Asset Beta – Example:


            ABC (Pty) Ltd is a company operating in the furniture manufacturing industry and
            is 60% debt funded.


            XYZ Ltd, a company operating in the same industry, is 80% debt funded and has a

            beta of 0.7.





            Required:


            Calculate the Beta for ABC (Pty) Ltd.





            If you need to calculate Beta for an unlisted (private) company you will use a proxy

            Beta of a similar listed company as your starting point.

                                                                                                                                     49
   44   45   46   47   48   49   50   51   52   53   54