Got Homework?
Connect with other students for help. It's a free community.
Here's the question you clicked on:
 0 viewing
momr1958
Group Title
Can someone please help with this problem.
A firm’s current balance sheet is as follows:
Assets $100 Debt $10
Equity $90
a. What is the firm’s weightedaverage cost of capital at various combinations
of debt and equity, given the following information?
Debit/Assets 0%, 10%, 20%, 30%, 40% 50%, 60%
Aftertax cost of Debt 8%, 8%, 8%, 9%, 10%, 12%
Cost of Equity 12%, 12%, 12%, 13%, 14%, 15%, 16%
B) Construct a pro forma balance sheet that indicates the firm's optimal capital structure. Compare this balance sheet with firm's current balance sheet. What course of action should the firm tak
 2 years ago
 2 years ago
momr1958 Group Title
Can someone please help with this problem. A firm’s current balance sheet is as follows: Assets $100 Debt $10 Equity $90 a. What is the firm’s weightedaverage cost of capital at various combinations of debt and equity, given the following information? Debit/Assets 0%, 10%, 20%, 30%, 40% 50%, 60% Aftertax cost of Debt 8%, 8%, 8%, 9%, 10%, 12% Cost of Equity 12%, 12%, 12%, 13%, 14%, 15%, 16% B) Construct a pro forma balance sheet that indicates the firm's optimal capital structure. Compare this balance sheet with firm's current balance sheet. What course of action should the firm tak
 2 years ago
 2 years ago

This Question is Closed

sailu001 Group TitleBest ResponseYou've already chosen the best response.0
wacc=cost of debt*(portion of debt in capital structure)+cost of equity *(portion of equity in capital) if debt=10 and equity=90 cost of debt=8% cost of equity=12% (as the present ratio shows debt/asset=10/100=10% so corresponding values of cost of debt(which has no effect of tax as it is paid before tax is paid)=8%,cost of equity=12% wacc=8%*.1+12%*.9=11.6%
 2 years ago
See more questions >>>
Your question is ready. Sign up for free to start getting answers.
spraguer
(Moderator)
5
→ View Detailed Profile
is replying to Can someone tell me what button the professor is hitting...
23
 Teamwork 19 Teammate
 Problem Solving 19 Hero
 Engagement 19 Mad Hatter
 You have blocked this person.
 ✔ You're a fan Checking fan status...
Thanks for being so helpful in mathematics. If you are getting quality help, make sure you spread the word about OpenStudy.