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 would encourage you to do is to first think of the company. You have real assets. 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 to figure out return on asset, which is also called weighted average cost of capital. And by the way, I'm assuming something that you need to know, which I'll do 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 equal to return on equity. Okay? Very straightforward. It reminds me, it reminds you and me of what? Remember, orange apple? Very similar. So what do I need, how do I figure this out? Well, very simple. If you, just for a second, 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 as it video gaming. Is this clear? This is just mental. You don't need to do calculation. And where do you get this number from? Finance Yahoo Or ideally do it yourself, or if you don't have the time, Morning Star. Okay? So there's a, this is estimation involved. These are not just 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 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 no v here? Why no v here? Why? Because this isn't, these are the two numbers that belong to whom? The whole marketplace. They're 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 a 10 year government bond and you see what? Remember, I told you the company's forecasting. It's not forecasting, really. What is it doing, is just opening up the newspaper and looking at this number. However, here some judgement is involved and I said it assumes 5%. Again, that's based on their view of what the data from the past is suggesting. And what is this? You know already, 1.50. Can you do this in your head? Should be very straightforward. You see, that's what I. Taken a complicated thing like risk and made it so simple. So that's why I think this equation is better than E equals mc squared. Because E equals mc square is more about physics, and this is about life. And a little bit complicated. This is 12%. I want you to think about this, both about the nature, how I went about it. I took a lot of intuition and put it all into one equation. Don't ever forget that the intuition is far more important than the math. Math is very straightforward. How did I get 12? 4.5 plus 5 times 1.5. 5 times 1.5 is 7.5, plus 4.5 is 12%. So if I were to ask you what is this rate of return, what is this cost of capital? Remember, this is for which business? Video 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.
