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- 2011-7-11
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- 2013-9-26
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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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