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Okay. Welcome back.

And, if you didn't take a break, welcome continuing.

Okay. So, let's try to think about this.

I'm asking you to figure out the cost of capital of the company before it does so.

So, what I will encourage you to do is to first think of the company.

You've realized it, and you have how much debt or equity?

You just have equity. Debt is equal to, zero.

And this is which business? Video business.

Okay? So, I'm asking you the following.

I'm asking you to figure out return on a asset, which is also called rated average

cost of capital. And by the way, I'm assuming something

that you need to know, which I'll do later today, later this week.

Is that I'm making an assumption that there are no major frictions.

This is nature. How would it operate?

The weighted average cost of capital here would be what?

Return on equity. Why is that?

Because there's no debt. So, debt goes out of the picture, weighted

average cost of capital which is return on assets is also equity return on equity.

Okay? Very straightforward.

Reminds me, reminds you and me [laugh] of what?

Remember orange, apple? Very similar.

So, what do I need? How do I figure this out?

Well, very simple. If you just, just for a second, let's,

let's just get a clean sheet of paper for us, and come back.

So, let's do this. Let's try to think through this a little

bit. What do we know?

We know that Beta equity of this business, I'll put V on top.

V is for video gaming. And if I make a mistake tell me, okay?

Let your hand come out and say, come on, do it right.

Is equal to 1.5. Just telling you that D is equal to zero

makes you what? Makes you very uplifted and say this is

also beta asset that you gave me. Is this clear?

This is just mental. You don't need to calculate.

And where did you get this number from? Finance Yahoo, or idly, do it yourself.

Or if you don't have the time, Morning Star.

Okay? So there's a, this, this is estimation

invovled. These are not just, you know, like prices,

which are based on trading. These are manipulation of data, so

careful. 1.5.

Okay? Okay.

What do I need to do now to get cost of capital?

Remember cost of capital is what? Return on asset.

But you know that will also be equal to return on equity.

How do you know this? Sorry, I'm being painful.

Debt is equal to zero. This will be equal to what?

Rf. I'm going to write plus.

I'm dropping the expected signs. Rm times beta equity.

Video game, video game, video game. Why didn't I put a V, why, why no V here?

Why no V here? Why?

Because the certain, these are the two [laugh] numbers that belong to whom?

The whole market place. It has nothing to do with video gaming

directly, right? So, okay.

Do we know this? And, how would you get it?

Open up Yahoo Finance. Look at the ten year Government bond, and

you see what? Remember I told you, the companies

forecasting, it's not forecasting really. What is it doing?

It's just opening up the newspaper and looking at this number.

However, here are some judgement [inaudible], and I said it is, it is

assumes five%. Again, that's based on their view of what

the data from the past is suggesting. And what is this?

You know already, 1.5. Can you do this in your head?

Should be very straight forward. You see, that's what I like about capital.

Capital will take a complicated thing like risk and made it so simple, like, so

that's why I think this equation is better than E equals MC squared.

Because EMC squared is more about physics and this is about life, you know, a little

bit complicated. This is twelve%.

I want you to think about this, both about the nature, how I went about it.

I, I looked, took a lot of intuition and put it all into one equation.

Don't ever forget that the intuition is far more important than math, maths is

very, say straight forward. How did I get twelve?

4.5 plus five times 1.5. Five times 1.5 is 7.5 plus 4.5 is twelve%.

So if I, if I were to ask you, what is this rate of return?

What is this cost of capital? Remember, this is for rich business with

your business. Okay?

I'm going to, as I said, I'm going to take pauses painfully after every question.

But remember, I'm taking a pause you don't have to.

Whereas if you are trying to think through the problem and doing it on your own, feel

free to take a break. In fact, I would encourage you to do so.

See you soon.