Finance Problem but its basic math, i just cant see it right now

  • Thread starter Nawz
  • Start date
  • Tags
    Finance
In summary, the problem involves finding the weight of debt (wd) in the weighted average cost of capital (WACC) equation. The given information is that WACC is 13%, the tax rate is 35%, and the cost of debt (kd) is 9%. By simplifying the equation, wd can be found to be 30%. This means that the common equity weight (wsks) is 70%. The problem can also be solved by setting up an equation and solving for wd, which also results in 30%.
  • #1
Nawz
32
0

Homework Statement



A. 53%
B. 40%
C. 30%
D. 70%
E. 36%

Solution: WACC = wd kd (1 - T) + wsks ; 13.00% = wd (9% (1 - 0.35)) + (1 - wd) ($2(1.075)/$25.00 + 7.5%) ; Solve for wd = 30%.



Homework Equations





The Attempt at a Solution



ok, i got this one right but i did it by plugging in the answer becus i cld not figure it out. The formula for the answer how they do it is above but simplified i get this: .13=wd(.0585)+(1-wd)(.161)

wd comes out to be 30 percent.

i must be missing something because i can not figure it out
 
Physics news on Phys.org
  • #2
ok sweet i think i got it..

this is what i did.

13=5.85wd+16.1-16.1wd

-3.1=-10.25wd

wd=0.302439024

Since both must equal 100 in this problem. that is why they do 1-wd. What i originally did on the quiz was i just plugged in the answers wd and solved and then w/e was left must equal to 100. so using the 30 i got the common equity to be 70 percent when i plugged it in and BAM problem solved. I am just trying to figure out how the correct way was.
 

1. What is the difference between simple and compound interest?

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal amount plus any accumulated interest. This means that compound interest will result in higher returns over time.

2. What is the formula for calculating interest?

The formula for calculating interest is Interest = Principal x Interest Rate x Time. This formula can be used for both simple and compound interest calculations.

3. How do I calculate the future value of an investment?

To calculate the future value of an investment, you can use the formula FV = PV x (1 + r)^n, where FV is the future value, PV is the present value, r is the interest rate, and n is the number of compounding periods.

4. What is the difference between a stock and a bond?

A stock represents ownership in a company, while a bond represents a loan to a company or government. Stocks typically offer higher returns but also come with higher risk, while bonds offer lower returns but are considered safer investments.

5. How do I calculate the return on investment (ROI) of a project?

The formula for calculating ROI is (Gain from Investment - Cost of Investment) / Cost of Investment. This will give you a percentage that represents the return on your investment. A positive ROI indicates a profitable investment, while a negative ROI means a loss.

Similar threads

  • Precalculus Mathematics Homework Help
Replies
3
Views
4K
  • Precalculus Mathematics Homework Help
Replies
2
Views
2K
  • Precalculus Mathematics Homework Help
Replies
9
Views
2K
Back
Top