Ziwa’s Co MV of debt 1785 M$ and MV of equity 1400M$. Ziawa’s cost of capital is 9.4% and geared cost of equity is 16.83%. Pretax cost of debt is 4.76%. Tax rate 25%
The cost of equity is calculated as;
16.83%=Ke+.75(Ke-4.76%) x 1785/1400 Ke=10.93%
I am not understanding how this formula is derived or why they calculate in this way.