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SWASH

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11# 跳转到 »
发表于 2013-4-28 10:54 | 只看该作者
in the case of an all equity company - D=0, E=1
so D/E = 0
So formula reduces to Re = R0
which is right.
If Schweser has the formula in that way, it is definitely incorrect.
R0 = D/D+E* Rd * (1-T) + E/D+E * Re
work back from there to arrive at Re formula
and you will get
Re = R0 + (Ro-Rd(1-T)) * D/E

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ogoluwa

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12#
发表于 2013-4-28 10:55 | 只看该作者
Suppose Re = 16%, Rd = 5%, Tax = 20% Debt to Asset ratio = 50%
WACC = 0.5 x 5(1-20%) + 0.5 x 16
WACC = 0.5 x 4 + 0.5 x 16
WACC = 2+8
WACC = 10%
Using the formula (incorrect)
Re = Ro + (Ro - Rd)(1-t) D/E
Re = 10 + (10 - 5)(1-20%) x 0.5/0.5
Re = 10 + 5(1-20%) x 1
Re = 10 + 4
Re = 14% (Which is wrong)
Using the correct formula as CPK mentioned
Re = Ro + (Ro - Rd(1-t)) x D/E
Re = 10 + (10 - 5(1-20%))x 0.5/0.5
Re = 10 + (10 - 4) x 1
Re = 10 + (6)
Re = 16% (Which is correct)

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LokiDog2

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13#
发表于 2013-4-28 10:55 | 只看该作者
be careful may friends,2 EOC Q are based on this wrong formula

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lc26mizzou

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14#
发表于 2013-4-28 10:55 | 只看该作者
Please! I remind that: CFA text book is no wrong!
You should read this link for more detail.
http://en.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theorem

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sharksfan

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15#
发表于 2013-4-28 10:55 | 只看该作者
bump

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Chuckrox

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16#
发表于 2013-4-28 10:56 | 只看该作者
Why’re you bumping this? It is just going to create more confusion for everyone.

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IAmNeil

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17#
发表于 2013-4-28 10:56 | 只看该作者
for all-equity : wacc=re=r0, Vu=[EBIT(1-t)]/r0
if finance with leverage,  Vl=Vu+tD=D+E=[EBIT(1-t)]/rwacc,  and  rwacc=(D/Vl)rd(1-t)+(E/Vl)re
== Vl*rwacc=rd*(1-t)*D+re*E
== EBIT(1-t)=rd*(1-t)*D+re*E
== Vu*r0=rd*(1-t)*D+re*E
== r0*(Vl-t*D)=rd*(1-t)*D+re*E
== r0*(D+E-t*D)=rd*(1-t)*D+re*E
== ro*(1-t)*D+r0*E=rd*(1-t)*D+re*E
== re=r0+(r0-rd)*(1-t)*(D/E)

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mkytz15

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18#
发表于 2013-4-28 10:56 | 只看该作者
Oh no not again. Aether, are we going to bother?

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leadcfa

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19#
发表于 2013-4-28 10:56 | 只看该作者
BrightStar wrote:
Oh no not again. Aether, are we going to bother?
LOL, exactly my thoughts.
Guys, quit bumping this thread… the formula given in the CFAI text is correct as given. No need for proofs or second-guessing the core material.

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