using pure play, part of the course? are we uspposed to calculate levered/unlevered beta of comparable company?
i remember asking about this, because it wasn’t in any of the LOS someone said it sounds like it’s beyond the scope of the curriculum, i decided not to memorize it this is my opinion and not a fact :-f
found my thread on the subject http://www.analystforum.com/phorums/read.php?11,663939 i still don’t know haven’t come across it in schweser either, and dont see any LOS about it
this is key and it is easy first unlever, then relever. They do this in I banking all the time, so if you are going into that field, learn this sh$$ here we go unlevered beta = equity beta/(1 + (d/e)(1-t) and relevered beta = asset beta gotten in step above * (1+(d/e)(1-t) t = tax rate d/e = debt to equity some questions will FORCE you to find the d/e first, so be ready this can be time consuming, so do a couple – this is in the corporate finance section of CFAI books
Remember seeing this once…its called the Hamada equation. But I don’t remember the (1-t) component.
It is in the CFAi books, unlevering and levering.
amberpower Wrote: ------------------------------------------------------- > It is in the CFAi books, unlevering and levering. it is in the corporate fin book – I think it will have to appear on test at least once.
It is not mentioned in any LOS and there is no mention of it in Schweser. FYI not everything in the CFAI book is going to be tested on the exam - only the things from the LOS. This is because they lift entire chapters from textbooks.
I know many people who have written the CFA in the past 2 years and they all say that some stuff they thought would be 100% on it were left off. I have asked most of them and none had to lever/unlever a beta in Level 1
Here are the LOS for reading #46 (Cost of Capital) where the levered/unlevered beta and related topics are mentioned. Which of the LOS would require us to use the pure-play method? The candidate should be able to: a. calculate and interpret the weighted average cost of capital (WACC) of a company; b. describe how taxes affect the cost of capital from different capital sources; c. describe alternative methods of calculating the weights used in the weighted average cost of capital, including the use of the companyís target capital structure; d. explain how the marginal cost of capital and the investment opportunity sched-ule are used to determine the optimal capital budget; e. explain the marginal cost of capital’s role in determining the net present value of a project; f. calculate and interpret the cost of fixed rate debt capital using the yield-to-maturity approach and the debt-rating approach; g. calculate and interpret the cost of noncallable, nonconvertible preferred stock; h. calculate and interpret the cost of equity capital using the capital asset pricing model approach, the dividend discount model approach, and the bond-yield-plus risk-premium approach; i. explain the country equity risk premium in the estimation of the cost of equity for a company located in a developing market; j. describe the marginal cost of capital schedule, explain why it may be upward- sloping with respect to additional capital, and calculate and interpret its break-points; k. explain and demonstrate the correct treatment of flotation costs
supersharpshooter Wrote: ------------------------------------------------------- > It is not mentioned in any LOS and there is no > mention of it in Schweser. > > > FYI not everything in the CFAI book is going to be > tested on the exam - only the things from the LOS. > This is because they lift entire chapters from > textbooks. Are you positive about this? Because the FSA chapters has a lot of noise and can hardly understand what is going on. FSA is tough!!!
Also, sharp, where did you find the LOS in electronic form. I only have the LOS on paper before the chapter begins.
The LOS are available here: http://www.cfainstitute.org/cfaprog/resources/l1_outline.html There is a link at the top of the page for a big file with all LOS, or you can view them by study session.
If you are referring to the CFAI Materials; This topic can be found in Vol4 - Reading 45 ; PG 56-63
I spoke with the Schweser people about topics discussed in CFAI text but not mentioned at all in study notes. According to them, if it’s not part of the LOS, it will not be tested and therefore its not discussed in the study notes. CFAI text at times goes over board with their explanations and discusses things which are not part of the actual LOS.