Question: The above question has the following solution. Explain the correct approach and answer SUBJECT F3: FINANCIAL STRATEGY 45 The answer is 13.42% Keg = Keu

The above question has the following solution. Explain the correct approach and answer

SUBJECT F3: FINANCIAL STRATEGY 45 The answer is 13.42% Keg = Keu + (Keu - Kd) x D(1 - t)/E 0.14 = Keu + (Keu - 0.08) x 8 x 0.7/52 0.14 = Keu + 0.1077(Keu - 0.08) 0.14 = Keu + 0.1077Keu - 0.008616 0.1486 = 1.1077Keu 0.1486/1.1077 = Keu = 0.1342 = WACC Note: WACC = Keu for an ungeared company

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