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I am using the M&M prop 2 formula to degear company
Current debt equity ratio is 20:80, cost of equity is 12%
Ref Moondog questionFormula is 12% = Kei + ( 1-0.3)(Kei -4%)(20/80)
The answer seems to be 10.8% but I am not able to rearrange the formula to get the correct answer. Could you show how the equation is simplified
Apologies, my maths is letting me down here. Thank you
12 = kei + 0.7 (kei – 4) (20/80)
12 = kei + 0.175 (kei – 4)
12 = kei + 0.175 Kei – 0.7
12.7 = 1.175 Kei
Kei = 12.7 / 1.175 = 10.8
Hope that helps 🙂
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