CFA CFA Level 1 weight cost of capital

weight cost of capital

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    • Avatar of googs1484googs1484
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        • CFA Level 3
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        Don’t even have to do that much.  No need to get a reciprocal. Debt/equity is .6 so there’s .6 debt per 1 equity. So debt is .6/1+.6= .6/1.6= .375. Equity =1-.375=.675

      • Avatar of googs1484googs1484
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          • CFA Level 3
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          Always happy to help.  When I can lol

        • Avatar of Stuj79Stuj79
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            If your debt to equity ratio is 0.6, that means for every 1 unit of debt you have 1/0.6 = 1.666* units of equity. 

            That means your debt + equity = 1 + 1.666* = 2.666*

            So from that we can work out the relevant weightings for the WACC calculation as follows:

            Debt = 1/2.666*= 0.375

            Equity = 1.666*/2.666* = 0.625 or of course it can also be calculated as 1 – 0.375 = 0.625

            😀

          • Avatar of EQ_ArbitrageEQ_Arbitrage
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              thanks, much appreciated

            • Avatar of sykersyker
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                WACC =[ (1-t)*(D/V)*kd)] + [(E/V)*ke]
                where, D=Debt
                E=Equity
                t=tax rate
                V=D+E
                kd=cost of debt
                ke=cost of equity

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