I had though ti could get it without formulas…
But some of the propositons like return for equity = old wacc + (old wacc - new debt cost) (1-tax) (D/E)… isnt as easy as i thought.
Thanks!
I had though ti could get it without formulas…
But some of the propositons like return for equity = old wacc + (old wacc - new debt cost) (1-tax) (D/E)… isnt as easy as i thought.
Thanks!
Yah, I’m having the same issue right now. Relearning WACC is a pain in the ass.
I figure that as long as I can pronounce Modigliani – mo-dill-yan-ee – I’m ahead of the game.
Noted!
i dont think i have seen this old wacc, new wacc formula …
where exactly is it ??
Naz corporate finance topic capital structure…
Re = Ro + (Ro-Rd) (1-t) (D/E)
isn’t R0 the wacc if the firm was 100% equity?
Yes and according to MM proposition II, the cost of equity increases as you increase debt.
The new cost of equity = Ro + (Ro-Rd)(1-tax)(D/E)
then you calculate the WACC using the new cost of equity and cost of debt