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I’struggling to understand the algebra steps for the formula to work out the ungrared cost of capital.
How do you go from:
16.83% = Keu + 0.75 x (Keu – 4.76%) x 1,785/1,400to
16.83% = Keu + 0.9563Keu – 4.55%
I can understand 0.9563 as that is 0.75 × 1,785/1,400
But i can’t see how we get 4.55%
And why do we then add 1 to 0.9563?I will answer you, but in future you must ask in the Ask the Tutor Forum if you want me to answer – this forum is for students to help each other.
16.83 = Keu + (0.75 x (Keu – 4.76) x 1785/1400
For the last part of the equation, 0.75 x Keu x 1785/1400 = 0.9563 Keu
and, 0.75 x 4.76 x 1785/1400 = 4.55So, 16.83 = Keu + 0.9563 Keu – 4.55
1 Keu + 0.9563 Keu = 1.9563 Keu
So, 16.83 = 1.9563 Keu – 4.55
You should be able to finish the rest yourself
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