Corp Finance WACC question

Note: edited due to S2000 catching a poorly-proofread error of mine.
Here’s a way to do it that’s so simple even the marketing/management/general business majors get in my intro class.
Let D/C equal 0.60.
1) Set the Denominator Numerator to 100. So, C = 100.
2) Since C=100 and D/C = 0.60, D=60
3) Since D+E = C, C=40
4) Finally, D/E = 60/40 = 1.50
In the intro class, some students get confused doing from the Debt Ratio (D/A) to the D/E ratio to the Equity Multiplier (A/E, called the leverage ratio in CFA terms). Using this approach lets them convert from one to another even if they can’t do simple fractions (yes, I know that’s pathetic, but that’s how it is).
 
busprof wrote:
Here’s a way to do it that’s so simple even the marketing/management/general business majors get in my intro class.
Let D/C equal 0.60.
1) Set the Numerator to 100. So, C = 100.
2) Since C=100 and D/C = 0.60, D=60
3) Since D+E = C, C=40
4) Finally, D/E = 60/40 = 1.50
In the intro class, some students get confused doing from the Debt Ratio (D/A) to the D/E ratio to the Equity Multiplier (A/E, called the leverage ratio in CFA terms). Using this approach lets them convert from one to another even if they can’t do simple fractions (yes, I know that’s pathetic, but that’s how it is).
Click to expand...
Not to put too fine a point on it, C’s the denominator.
Carry on.
 
2000 - thanks. Had to much good steak for dinner, and all the blood went to the stomach, leaving nothing for the brain. Fixed it in the original to avoid confusion.
Recommended your tutoring services to a student of mine the other day.
 
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