Page 20 - PowerPoint Presentation

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.

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