PM Mock 2012 - Q26 and 28

  1. How do they come up with the weight of debt and weight of equity being 0.5 from the given information of Debt to Asset being 50% :

wd = 0.5, we = (1-0.5)

  1. Same type of issue with the D/E calculation. As per answers, the D/E ratio is 1.5 given by 0.50 / (1-.05); where 0.5 is the Debt to Asset ratio. I am getting lost on this notion…

What am I missing?

A=L+E where in this case Debt (D)=L

so: Debt to Asset = D/A, which is the same as D/(D+E); if D/(D+E) = 50% then wD=.5 and wE=.5

D/E=.5/.5 which is 1, not 1.5. in order to get 1.5, D/E would need to be 3/2 or 60% Debt and 40% Equity.

It was given at the bottom of Exhibit 1