标题: Am I Missing Something or is CFA book Incorrect? [打印本页] 作者: ikoreaii 时间: 2013-4-8 21:05 标题: Am I Missing Something or is CFA book Incorrect?
Example 13, on CFA Volume 4, Reading 45, page 64
I can’t solve the Betas on Table 5 using the pureplay method cause there is no mentioning of the debttoequity ratio. The example only list the debttocapital ratio which I believe is not a variable to solve for the leveraged beta. Am I missing something?
Also, I’m having a problem solving for the WACC in Table 5 as well.
Appreciate it if someone can explain.作者: Mechanic 时间: 2013-4-8 21:06
Capital equals debt + equity. Given debt to capital you can solve for debt to equity.作者: Palantir 时间: 2013-4-8 21:06
DTM,
The problem is the book provides a flat rate for the debttocapital ratio. For example it lists debttocapital is .50
I don’t see how I can solve for debt to equity unless they provide a breakdown of values for debt or equity作者: brainsX 时间: 2013-4-8 21:06
if wondering, check cfai’s errata web page.作者: agulani 时间: 2013-4-8 21:07
Checked and the errata page did not state anything on this reading….作者: Iginla2010 时间: 2013-4-8 21:08
I’d appreciate this DTM86, please let me know what you think of Table 5作者: dyga 时间: 2013-4-8 21:08
Which part are you having trouble with? I’ll go ahead and provide what is hopefully a helpful explanation for each column.
D/D+E is just given for you to solve and I’ll refer to as D/A below.
Beta: You are given the unlevered beta of 0.9. Using the D/A to get to D/E by doing [D/A / (1D/A)] and then you can solve for Beta by using the formula = Bu * [1+D/E*(1tax)]
Cost of debt: they give you the base rate of 4.5% which you apply a spread to as given in the table above for different levels of debt. 100bps = 1% so as an example at a D/A of .4 the spread is 300bps so 4.5%+3%=7.5%
Cost of equity: Use CAPM. You just found the levered betas and they give you the risk free rate and market risk premium. Re=Rf+Beta*MRP
WACC: Use all the other inputs you just found: WACC=Re*(1D/A)+Rd*D/A*(1tax)
The optimal capital structure is at 30% debt because WACC is minimized作者: joemoran 时间: 2013-4-8 21:08
Thanks DTM,
I was having trouble calculating Beta for each D/D+E or D/A as you called it.
Reason was that the book normally indicates D/E (debt to equity ratio) to calculate asset or equity beta. This example specifically indicated D/D+E (debt to total capital ratio).
So I guess you can convert debt to capital ratio to debt to equity by dividing debt to captital ratio by 1 Debt to capital ratio? How’d you figure that out?作者: waldziuchna 时间: 2013-4-8 21:09
DTM,
After taking a second thought and looking at this again, i realize the concept is simpler that how i just described it above.
If Debt/(Debt + Equity) = .70
so
Debt/Equity = .70/.30
Thanks again for your help!作者: marsilni 时间: 2013-4-8 21:09
Exactly! That’s what I meant above as well with the .5/.5=1 example. Glad i could help作者: cv4cfa 时间: 2013-4-8 21:09
