Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Revision note, pg 32& 33, the MM theory
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- November 26, 2016 at 6:25 am #351539
Hi Sir, i refer to you Revision note, pg 32& 33 regrading the MM theory and the example.
Company raised more debt and the gearing ratio change to 80% (debt to quity)
i am a bit confused with the gearing ratio.
since it meantioned gearing ratio change to 80% (debt to quity).the market value of equity should be 100
the market value of debt should be 80
so total market value is 180but how come the answer of new WACC, the total market value is 80+20, not 100+80 ?
AND,
in MM formula, the Cost of debt is always refer to risk free debt?
November 26, 2016 at 11:04 am #351604The answer in the notes is wrong, and I must correct it.
However the lecture working through the example is completely correct.
November 26, 2016 at 1:55 pm #351642so the total market value should be $100+80,
new Ke is 22.63%
new WACC is 13.9%am i right?
November 26, 2016 at 3:11 pm #351673Correct 🙂
November 26, 2016 at 3:16 pm #351677i noticed that in page 50, example 2 answer also got same problem : gearing ratio
November 26, 2016 at 3:23 pm #351682Maybe, I will check. I must remove the revision notes anyway, because it is the main notes and lectures that are important, and they certainly are correct 🙂
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