WACC. DETERMINING WACC

CFA Level II Corporate Finance
#1

Hi,

Could anybody tell me why D/E = 0.25 it is the equivalent of D/V = 0.25/1.25 ?

I´m doing an excercise of getting the rwacc ( D/V rd (1-T) + E/V re). and in the solutions appears the equivalency without any further explanation .

Thanks

#2

Hi,

D/E = 0.25 = 25/100 <=> V = D+E = 25 + 100 = 125 <=> D/V = 25/125

Regards, Oscar

#3

D/E = 0.25

D = 0.25 E

D/V = D/(D+E) = 0.25E / (0.25 E + E) = 0.25E / (1.25 E) = 0.25 / 1.25