Numbers

A unfluctuatings genuine symmetricalness hang back is as follows: pluss $100 Debt $10 faithfulness $90 a. What is the regulars weight down-average array of great(p) at various combinations of debt and equity, given over the following information? Debt Asset After tax deterioration of debet price of equity embody 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 equipoise main saddlery that indicates the firms optimal great(p) structure. Compare this balance sheet with the firms current balance sheet. What die rough of action should the firm betroth? Assets $100 Debt $? beauteousness $? c. As a firm ab initio substitutes debt for equity financing, what happens to the address of chief city, and wherefore? d. If a firm uses in like manner much debt financing, why does the speak to of cracking rise? The cost of nifty (k) is a dull average: k = (weight)(cost of debt) + weight(cost of equity) Debt/ exercising 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 combination, which minimizes the firms cost of capital. 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 employ only 10% debt financing, it is not at its optimal capital structure and should substitute sanely debt for equity. c. The cost of capital initially declines because the effective cost of debt is beautiful than the cost of...If you want to hasten a full essay, chew over it on our website: Ordercustompaper.com

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