wacc=re*E/(D+E)+rd*(1-t)*D/(D+E) === (wacc*E)+(wacc*D)=re*E+rd*(1-t)*D
=== (wacc*D)-(rd*(1-t)*D)=(re*E)-(wacc*E) === (wacc-rd*(1-t))*D=(re-wacc)*E
=== (wacc-rd*(1-t))*D/E=re-wacc ===wacc+(wacc-rd*(1-t))*D/E=re
in capital structure reading we suppose:WACC=r0 so:
re= r0 + (r0-rd*(1-t))*D/E
this is right formula but in this reading we have this formula :re= r0+ (r0-rd) (1-t) D/E
2 of EOC questions is based on this wrong formula!!!!!
u are right,”ro” refer to wacc for all-euity company but all-euity company is one of many possibilities of wacc that should applied to wacc=re*E/(D+E)+rd*(1-t)*D/(D+E) formula.
re= r0+ (r0-rd) (1-t) D/E and wacc=re*E/(D+E)+rd*(1-t)*D/(D+E) must be equivalent,but they aren’t.
in perivious curriculum of CFA ,re= r0 + (r0-rd (1-t)) D/E formula have been used but in 2012 curriculum this formula changed to re= r0+ (r0-rd) (1-t) D/E.
whats wrong?!!!
that formula you derived
as re = ro + (ro-rd(1-t))D/E is the right one.
This should be an erratum item. If it is not, please report it. This has been corrected in previous years as well, but probably the original author’s reading never gets corrected..
go to their website - and it is there to find out.
or send an email to info@cfainstitute.org and mention Erratum … on the mail subject
with pg #, and details …. in the body
I also saw the same formular (Re= Ro + D/E*(1-t)*(R0-Rd)) in the shweser note.
So, is shweser note also wrong?
I think it is not!
You are wronging!
Please renember that, R0 is the cost of all equity company.
WACC is cost of equity and debt firm.
”ro” refer to wacc for all-euity company but all-euity company is one of many possibilities of wacc that should applied to wacc=re*E/(D+E)+rd*(1-t)*D/(D+E) formula
发表于 2013-4-28 10:52
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