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Hie John..
My question is from BBP kit question 205It says
average debt/debt plus equity ratio of 25%
And their answer is
If Vd/(Vd + Ve) = 0.25 then Vd = 0.25 and Ve = 0.75. So Ve/(Ve + Vd) = 0.75/1 = 0.75.I am getting vd 0.75 , ve 0.25
Vd/(vd+ ve)=0.25
Vd=0.25(vd+ve)
Vd-0.25vd=0.25ve
0.75vd =0.25veCan you kindly explain how I am getting all this wrong
What you have written is correct and is the same as the BPP answer (but what you have done isn’t really needed).
Multiply both sides of your last line by 4, and you get 3Vd = Ve.
Therefore Ve/(Ve + Vd) = 3Vd / (3Vd + Vd) = 3Vd / 4Vd = 0.75.
I do think it easier anyway to do what I do in my lectures rather than using the ratios themselves.
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