Question

Anyone know why (D/E)/(1+D/E) is equal to the proportion of debt spent on CAPEX? (D/E = debt to equity ratio). Damodaran has this in his 2 stage FCFE spreadsheet.

Answer 1

That equation gives you the debt/capital ratio. What Damodaran is saying is that the way capex will be funed depends on your debt/capital ratios. so when you do the maths the way he is saying, it means that if you spend 100 on capex you would basically be doing Debt/ Debt+Equity ( capital)