Q: WACC MM Proposition II

monialla

Hi all,

In reading 22, regarding MM Proposition II, Equation (7), (8) and (9)

VL = VU + tD         (7)

rwacc = (D/V) rd (1-t) + (E/V) re = r0     (8)

re = r0 + (r0 - rd )(1-t) * D/E     (9)

Here’s my question: In equation (8), V stands for which value? levered or unleveled one?

I tried to convert back and forth between equation (8) and (9). It only works if I use V=E+D(1-t) instead of V=E+D (which turns out to be re = r0 + [r0 -rd(1-t)] * D/E ).

Thanks in advance!