CFAI Reading 32 EOC question 13

A

amzi160586

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Hi guys,
So I was working through the EOC for Corporate Finance and came across Question 13 Reading 36 and believe that they have made a mistake in the solutions (else my understanding is incorrect) but maybe someone on here can help clear my confusion.
[Question and answer removed by admin]
Someone please confirm.
Thanks in advance.
 
just for future reference…. what are the exact rules about posting questions from other sources on here? I notice sometimes questions reposted out of various text are removed but other times not. I see that it may be a problem with copyright issues but then why are some questions, word for word, left up? Is it safer to paraphrase questions from texts so there will be not risk of a violation?
 
Sorry guys completly messed up the title..
So the problem is question 13 from CFAI Reading 36 (Cost of Capital).
I guess I won’t repost the question as it’s clearly agasit the forum rules, but if anyone can confirm that be great.
 
The problem is that you just say the book is wrong, and don’t comment the part you are confused. How can we help you on this…
 
I had it in the initial post but the admins have removed it -
So the issue is they compute the return on equity using CAPM but ignore the CRP. Just wanted confirmation if their approach or my approach (to include it) is correct.
 
Yeah me to, in that case all the questions after that (14 to 18) are most probably wrong as well.
 
From the question, it did not ask you to calculate the cost of equity for investment in the developing country (China), and thus there is no need for you to include CRP in the CAPM calculation.
It asked you to calculate the cost of equity for its typical project, and not its investment in the developing country specified in the question.
The answer look right to me.
 
I’m still not convinced. The whole purpose of the investment is to expand into China, and its states the CRP which is not used in any other question. Had it been use in a proceeding question I would agree but I’m just not sure anymore.
 
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