Question: How do they get e for the re formula? i keep getting 135.42 if i used the e= EBIT X (1-tc)/ru formula. Not 86.67 -

How do they get e for the re formula? i keep

How do they get e for the re formula? i keep getting 135.42 if i used the e= EBIT X (1-tc)/ru formula. Not 86.67

- The WACC decreases as D/E increases because of the government subsidy on interest payments - RA=(E/V)RE+(D/V)(RD)(1TC) - RE=RU+(RURD)(D/E)(1TC) - Find out RA and RE in the example: - EBIT=25 million; - Tax rate =35%; - Debt = \$75 million; - Cost of debt = 9\%; - Unlevered cost of capital =12%

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