atate2007

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!!!!!