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while calculating WACC after raising debt, 40/100 has been used.
When debt equity ratio is given as 0.4, the appropriate number has to be 4/14. We could use 0.4 if the given number was Total debt ratio instead of debt equity ratio. Am i right?
Yes.
Be careful how the ratio is given. If it is debt to equity then it is 4/14. If it is debt to (debt + equity) then it is 0.4.
Sir, if it’s true then the ans given in the class note has to be amended as 4/14 instead of 0.4.
It is chapter 12 1b
Thank you
Thank you – you are correct.
The answer of 13.71% is correct.
It is the workings in the line above the answer that has been mistyped. It should read: (16.96 x 100/140) + (5.6 x 40/140).
I will have the typing error corrected.(The lecture that goes with, and explains this chapter does show it correctly)
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