The question asks to estimate the Beta of Twin Industries. You are using the Pure Play Method and the comparable company has a beta of 1.09 and D/E of 60%. Twin Industries has a D/E has a 49% D/E. There was no mention of taxes in the portion describing this part of the viginette. But the rest of the viginette showed a tax rate of 30%, so I used that. I go to solve the problem using that tax rate. When I looked up the answer in the back of the book it did not use the tax rate at all. How is it possible to use the Pure Play Method and not use the tax rate?
CFAI doesn’t use tax rate in Level II. There is also one footnote about it in the curriculum.
Really? I missed that. Is that new because I took Level 2 last year and failed with a band 9 but I don’t remember that being the case.