BPP has a debt equity ratio of 1:2. It wishes to expand into recruitment consultancy. It...
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BPP has a debt equity ratio of 1:2. It wishes to expand into recruitment consultancy. It has identified that the Beta of a highly geared recruitment consultancy company (company X) is 1.8 - this is its equity beta and is influenced by its high level of gearing of 1:1 debt to equity. Assume that debt has a beta of 0. Risk free rate=4% Market rate = 12% Tax = 30% Required Calculate the cost of capital that BPP should use to appraise this investment. BPP has a debt equity ratio of 1:2. It wishes to expand into recruitment consultancy. It has identified that the Beta of a highly geared recruitment consultancy company (company X) is 1.8 - this is its equity beta and is influenced by its high level of gearing of 1:1 debt to equity. Assume that debt has a beta of 0. Risk free rate=4% Market rate = 12% Tax = 30% Required Calculate the cost of capital that BPP should use to appraise this investment.
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