Hi this is regarding a question from the level 1 Volume 4 “corporate finance and portfolio mgmt”, from reading 37 Cost of Capital. Practice problem number 18.
It is a monster question, here it is in entirety;
[Question and answer removed by admin]
The answer then gives the NPVs, but those aren’t relevant to my question as my question is simply how do they get the beta of 3.686 for the cost of equity?
Well this is embarrassing, my first post and less than 5 min later after just a liiiiitle bit more due diligence I find out why.
My mistake was using the same D/E value for both the asset beta and the project beta, I forgot that you have to use the industry or a comparable company’s D/E for the asset and then the projects D/E for the project beta. ARGHHHHH! sorry
I guess *solved*
can someone explain it in more detail