Hi Sir, i refer to you Revision note, pg 32& 33 regrading the MM theory and the example.
Company raised more debt and the gearing ratio change to 80% (debt to quity)
i am a bit confused with the gearing ratio.
since it meantioned gearing ratio change to 80% (debt to quity).
the market value of equity should be 100
the market value of debt should be 80
so total market value is 180
but how come the answer of new WACC, the total market value is 80+20, not 100+80 ?
AND,
in MM formula, the Cost of debt is always refer to risk free debt?
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Revision note, pg 32& 33, the MM theory
9y ago#1The answer in the notes is wrong, and I must correct it.
However the lecture working through the example is completely correct.
so the total market value should be $100+80,
new Ke is 22.63%
new WACC is 13.9%
am i right?
9y ago#3Correct :-)
i noticed that in page 50, example 2 answer also got same problem : gearing ratio
9y ago#5Maybe, I will check. I must remove the revision notes anyway, because it is the main notes and lectures that are important, and they certainly are correct :-)
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