Page 128 - AFM Integrated Workbook STUDENT S18-J19

Chapter 6

50
V E
Degear: ß = ß V E + V D [1 – T] =1.55 50 + 50[1 – 0.20] 0.86
a
e
6.5
Regear: ß = ß V E + V D [1 – T] so 0.86= ß 6.5 + 2.16[1 – 0.20]
V E
a
e
e
Therefore β e = 1.09
So k e = R f + β [E(R m) – R f ] = 2.50% + (1.09 x 6%) = 9.04%

V e V d
WACC = k + k (1 – T)
d
e
V + V d V + V d
e
e
= [(6.5 / 8.66) x 9.04%] + [(2.16 / 8.66) x 2.72% x (1-0.20)] = 7.33%

Illustrations and further practice

Now try TYU 8 from Chapter 6, to bring together lots of the calculations
introduced in this chapter.

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