How did you guys memorize the Modigiliani Miller Formulas?

CFA Level II
#1

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!

#2

Yah, I’m having the same issue right now. Relearning WACC is a pain in the ass.

#3

I figure that as long as I can pronounce Modigliani – mo-dill-yan-ee – I’m ahead of the game.

#4

Noted!

#5

i dont think i have seen this old wacc, new wacc formula …

where exactly is it ??

#6

Naz corporate finance topic capital structure…

Re = Ro + (Ro-Rd) (1-t) (D/E)

#7

isn’t R0 the wacc if the firm was 100% equity?

#8

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