Hopefully you've given it some thought, and even more so, tried to do some number crunching. And by the way, this number crunching is extremely important because it affects the cost of capital and cost of capital is very important because of? I haven't reminded you of this question, compounding. All right, okay, let's get started. I know that betas determine risk. So I know this equation, beta asset is equal to beta equity if what's true? There is no debt. But then, it's rated by equity over D plus equity plus beta debt rated by D over D plus E. Okay. If you stare at this equation, it won't be very surprising that you can rewrite to this beta equity. But okay and what you can do is do is on your own. You can write beta equity as, you seen this equation before, beta asset. Business risk plus D over E beta asset minus beta debt. Okay this has just transformation. I just transformed this to this. These are actually the same thing. Okay, quick question. What is the cost of capital of the project? The first thing you have to figure out is what's the cost, what project are we talking about? Let me put S here. And S here. So, the risk of the assets of the software business is what we are after. But then, I told you the numbers. What numbers did I give you? I gave you numbers of beta equity. So what was the beta equity? Beta equity was 1.40 is equal to beta asset, the unknown. Plus, I told you on average the ratio of debt to equity was how much? .25. Remember? All the data is with you, and which is this industry? S, software industry. Beta asset, again the unknown, till now we are safe. We have how many unknowns? One, how many creations? One, now life is a little bit, complicated if beta debt is also positive. What I made the problem pretty simple. What did I say? The debt was largely riskless in this industry. So, you can put zero. Quick question, will this be true usually? No. Unless there's very low levels of debt in the whole industry. So, typically, just as an example, beta debt is between 0.1 to 0.4. I'm just giving you broad numbers just to give you a context in which to put it. Why? Because there's always risk in there, too. Remember this is corporate debt, this is not straightforward government debt, that too without any coupons. Remember if you have coupons, there's risk. Okay, can you solve this equation? Heck, very easy. Beta asset security, S will be equal to 1.40 divided by 1.25. Do you see how did I get it? Because beta asset is beta asset plus 1.25 beta asset and 1.4. So beta asset in the software business is 1.4 divided by 1.25 which I believe is 1.12. You see, I've done some homework before I came. I think this is right, and if this is not, just do it right. I think it's okay. So 1.12 is the beta asset of which business? The software business. Let me ask you. What was the beta asset of the video gaming business? Was it higher or lower? One estimate I had was 1.5. I am calling it one estimate because I took the video gaming business existing of my own. There could be other companies in the video gaming business. So you want to average these across different because these are estimates. Okay so beta asset software business is 1.12. We've almost come, almost come all the way to cost of capital. What have I done here? Notice one simple thing. If I asked you, what is the beta asset, directionally, of the software business, if I gave you beta acuity of 1.4, you should say what? The maximum beta asset of the software business can be 1.4 because the beta equity's 1.4. But because it has debt, the beta asset has to be lower [LAUGH] than beta equity because equity has financial risk in it. Okay, you estimate it to be 1.4. So let's just start off with a clean slate here, and go the next step. So what is the next step now? Cost of capital. Turns out, you know how to do that. Ra of the software business is equal to what? Rf. What equation am I writing? CapM + Rm- Rf time beta asset of software business. You see how cool this is? I know this is 1.12. But I know this is 4.5% and how much is this? 5% now this is a little bit all our numbers can't be well rounded and so on. So their a little bit off. So this is 10.1%. Okay, why 10.1? Because 4.5 plus 5 multiplied by 1.2, this becomes 5.6. So 5 multiplied by 1.2 this multiplication is 5.6. So 5.6 plus 4.5 is 10.1. We'll treat it almost 10, just because we are family and I'm going to just worry about the .1 when we talk ok? So quick question, please think this through, I've done a lot of calculations, but again, the thinking comes before the pen starts punching numbers. And you didn't need Excel, right? So let's take a break, come back.