If debt to assests is 0.4, then it means debt's weight in the given question is 0.4 and assests weight is 1. so, since, equity+ debt =assests i.e, equity +0.4=1, that means, equity=0.6, this happens when debt to assest ratio is given in a question, while when debt to equity ratio is given i.e, suppoRead more
If debt to assests is 0.4, then it means debt’s weight in the given question is 0.4 and assests weight is 1. so, since, equity+ debt =assests i.e, equity +0.4=1, that means, equity=0.6, this happens when debt to assest ratio is given in a question, while when debt to equity ratio is given i.e, suppose, 0.4, that means, debt is 0.4 and equity is 1, out of the total assests, whose ratio comes out to be, 0.4(debt)+1(ratio of equity)=1.4. so, as to see what ratio of debt a firms capital structure contains, we calculate it by firms debt divided by total assests(debt+equity),while computing wacc.
What weights to use for WACC
If debt to assests is 0.4, then it means debt's weight in the given question is 0.4 and assests weight is 1. so, since, equity+ debt =assests i.e, equity +0.4=1, that means, equity=0.6, this happens when debt to assest ratio is given in a question, while when debt to equity ratio is given i.e, suppoRead more
If debt to assests is 0.4, then it means debt’s weight in the given question is 0.4 and assests weight is 1. so, since, equity+ debt =assests i.e, equity +0.4=1, that means, equity=0.6, this happens when debt to assest ratio is given in a question, while when debt to equity ratio is given i.e, suppose, 0.4, that means, debt is 0.4 and equity is 1, out of the total assests, whose ratio comes out to be, 0.4(debt)+1(ratio of equity)=1.4. so, as to see what ratio of debt a firms capital structure contains, we calculate it by firms debt divided by total assests(debt+equity),while computing wacc.
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