Required return on equity question

CFA Level II Corporate Finance
#1

Hi there and thanks in advance:

Given a cost of capital of 12%, a cost of debt of 6%, a tax rate of 40%, and a debt to asset ratio of 50% , the cost of equity equals 16.4%.

I dont know how they get this 16.4% please help.

What I am doing is 0.12%= 0.5 * Ke + 0.5 * (1-0.4) * 0.06 and then to get Ke… that is 20.4% … how did they manage to get the 16.4???

#2

It looks like they calculated 16.4 % with the Cost of Capital as 10%

check with the source on errata …

#3

They haven’t updated the 2018 errata (Wiley).

Thanks for your reply CPK