Post by tayob8 on Dec 27, 2018 2:43:11 GMT
Hi guys, hope you can help me, I am simply struggling with the re-arranging of the formulas as i cannot seem to get the answer, could you please provide a breakdown of how i can to the answer in a fairly quick and simple way because of time restraints in the exam, I am doing F3 and i can see a lot of questions on the Gearing (capital Structure) which require the Keg and Keu and other formulas to be arranged and the solution only states - re-arrange, it doesn't clearly state what i have to divide or multiply, please advise, i have written a question below from the practice questions from the aptitude 2: Cima Study
Clood Co has a cost of equity of 13% and a gearing level (measured as debt/equity andstated as a percentage) of 30%. An equivalent ungeared company has a cost of equity of 12% and the rate of corporate income tax is 20%.
Assuming that Modigliani and Miller’s assumptions hold, what is the required rate ofreturn of Clood Co’s lenders?
(enter your answer as a percentage, to one decimal place)
Your answer:
Correct answer: 7.8 or 7.8%
Answer
That\'s incorrect.
M+M formula:
Keg = keu + (keu – kd)(1-T)(Vd/Ve)
0.13 = 0.12 + (0.12 - kd)(1-0.20) x 30%
Rearranging gives kd = 7.8% (to one decimal place)
(I JUST DONT GET THE RE-ARRANGING BIT, HOW DO I GET 7.8%!!!!!)
Clood Co has a cost of equity of 13% and a gearing level (measured as debt/equity andstated as a percentage) of 30%. An equivalent ungeared company has a cost of equity of 12% and the rate of corporate income tax is 20%.
Assuming that Modigliani and Miller’s assumptions hold, what is the required rate ofreturn of Clood Co’s lenders?
(enter your answer as a percentage, to one decimal place)
Your answer:
Correct answer: 7.8 or 7.8%
Answer
That\'s incorrect.
M+M formula:
Keg = keu + (keu – kd)(1-T)(Vd/Ve)
0.13 = 0.12 + (0.12 - kd)(1-0.20) x 30%
Rearranging gives kd = 7.8% (to one decimal place)
(I JUST DONT GET THE RE-ARRANGING BIT, HOW DO I GET 7.8%!!!!!)