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Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › MLIMA CO 6/13

- This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.

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- May 29, 2016 at 12:54 pm #317922
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?May 29, 2016 at 5:09 pm #317951I 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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