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Analyze_This

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11# 跳转到 »
发表于 2011-7-13 16:12 | 只看该作者
Sorry to bring this up again. This section is using the following formula:

WACC = risk free rate + asset beta * market risk premium

I have never seen this formula before. Usually its


WACC = cost of equity * E/(D+E) + cost of debt *(1-t) * D/(D+E)

and

Cost of equity = risk free rate + equity beta * market risk premium

The WACC formula used in this section seems to ignore the cost of debt entirely.

Any comments?

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mar350

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12#
发表于 2011-7-13 16:12 | 只看该作者
Asset beta is different from equity beta. The formula assumes that the debt to equity ratio for the market is the same for the company hence the WACC is the cost of capital (debt + equity) as measured against the entire market.

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NakedPuts2011

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13#
发表于 2011-7-13 16:12 | 只看该作者
Also the formula is using "operating asset beta" instead of "total asset beta". i would recommend you to buy study session 5 from finquiz.com and attempt questions for this los. It helped me understand all the complications and linkages between the pension asset balance sheet + beta and sponsor's balance sheet + beta (equity, operating and total)

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IAmNeil

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14#
发表于 2011-7-13 16:12 | 只看该作者
^is that you mitchels

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mik82

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15#
发表于 2011-7-13 16:12 | 只看该作者
thommo77 Wrote:
-------------------------------------------------------
> ^is that you mitchels

keep on guessing

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Colum

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16#
发表于 2011-7-13 16:12 | 只看该作者
also a point on this reading, look at the command words in the LOS, no mention of calculate, just: explain/compare contrast/discuss
-dont worry about calculating

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Unforseen

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17#
发表于 2011-7-13 16:12 | 只看该作者
TOcfaGuy Wrote:
-------------------------------------------------------
> also a point on this reading, look at the command
> words in the LOS, no mention of calculate, just:
> explain/compare contrast/discuss
> -dont worry about calculating

Don't rely on the LOSs, they can be misleading. The calculation of WACC was required in
2009 AM Exam. Most of all, many questions in past exams were out of the scopes of LOSs.

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