Page 50 - 5.2 i. Manac Finance ITC Summarised Notes
P. 50
COST OF CAPITAL
Ordinary equity (ke)
The entities will have different capital structures, therefore, first ungear the proxy Beta using the following
formula:
B (ungeared / asset beta) = B (geared) x E____
E + D(1 – t)
= 0.7 x 20_____
20 + 80(0.72)
= 0.18
Then re-gear the proxy Beta taking the unlisted (private) company’s capital structure into account:
B (geared / equity beta) = B (ungeared) x E + D (1 – t)
E
= 0.18 x 40 + 60(0.72)
40
= 0.37
50
