Question: Sunshine Ltd is in the same industry as Sparkle Ltd but is located in a tropical area that often faces flooding. Sunshine Ltd is not

Sunshine Ltd is in the same industry as Sparkle Ltd but is located in a tropical area that often faces flooding. Sunshine Ltd is not a listed firm and it needs to calculate its WACC. The CFO of Sunshine Ltd says that they should use a different beta from Sparkle Ltd in their calculations because of their location. Specifically, the frequent floods make it more likely that Sunshine Ltds assets will be damaged. Explain what effect this flooding should have on Sunshine Ltds beta.

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