Numbers

A unfluctuatings current symmetricalness attach is as follows: Assets $100 Debt $10 faithfulness $90 a. What is the theatres weight down-average represent of great(p) at various combinations of debt and equity, disposed the following information? Debt Asset After tax molest of debet Cost of equity Cost of Capital 0% 8% 12% ? 10% 8% 12% ? 20% 8% 12% ? 30% 8% 13% ? 40% 8% 14% ? 50% 10% 15% ? 60% 12% 16% ? b. Construct a pro forma eternal sleep winding-clothes that indicates the sloppeds optimal great(p) structure. Compare this balance weather sheet with the firms current balance sheet. What die firm of action should the firm take? Assets $100 Debt $? Equity $? c. As a firm initially substitutes debt for equity financing, what happens to the court of capital, and why? d. If a firm uses too much debt financing, why does the court of capital rise? The greet of capital (k) is a leaden average: k = (weight)(cost of debt) + weight(cost of equity) Debt/ Weight x + Weight x = Cost of Assets Cost Cost Capital of Debt of Equity 0% (.0)(.08) + (1.0)(.12) = .120 10 (.1)(.08) + (.9)(.12) = .116 20 (.2)(.08) + (.8)(.12) = .112 30 (.3)(.08) + (.7)(.13) = .115 40 (.4)(.09) + (.6)(.14) = .

120 50 (.5)(.10) + (.5)(.15) = .125 60 (.6)(.12) + (.4)(.16) = .136 b. The optimal capital structure is that combinati on, which minimizes the firms cost of capita! l. In this case that occurs where debt is 20% of capital and the cost of capital is 11.2%. The balance sheet is Assets $100 Liabilities $20 Equity 80 Since the firm is currently using only 10% debt financing, it is not at its optimal capital structure and should substitute somewhat debt for equity. c. The cost of capital initially declines because the effective cost of debt is slight than the cost of...If you want to get a full essay, suppose it on our website: OrderEssay.net

If you want to get a full information about our service, visit our page: write my essay