MGT 302 - Financial Management
MGT 302 - Financial Management
MGT 302 - Financial Management
Management
Beta estimate
&
Cost of Capital
Learning Objectives
• Discuss the methods of estimating beta.
• Explain the market model for calculating
beta.
• Examine the difference between betas of
individual firms and the industry beta.
• Show the use of beta in determining the
cost of equity.
Beta Estimation
Example
Returns on Sensex and Jaya Infotech
Example-Steps to be followed
Con….
Example
Beta Calculation for Jaya Infotech Limited
Industry Vs. Company Beta
• The use of the industry beta is preferable for
those companies whose operations match up
with the industry operations. The industry beta is
less affected by random variations.
Tax adjustment
After tax cost of debt k d (1 T)
EXAMPLE