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Capital structure

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Capital structure

  • This topic has 3 replies, 2 voices, and was last updated 3 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 15, 2021 at 6:15 pm #637771
    Nercia@1234
    Participant
    • Topics: 21
    • Replies: 22
    • ☆

    Hie John..
    My question is from BBP kit question 205

    It 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 =0.25ve

    Can you kindly explain how I am getting all this wrong

    October 16, 2021 at 9:55 am #637800
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    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.

    October 16, 2021 at 3:47 pm #637814
    Nercia@1234
    Participant
    • Topics: 21
    • Replies: 22
    • ☆

    Thank you so much.

    October 17, 2021 at 8:50 am #637833
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Capital structure’ is closed to new replies.

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