FIN370
August 5, 2010
Charles Prescott
3) a. What is the firms weighted-average cost of capital at various combinations of debt and equity, given the followers information?
|Debt/Assets |After- Tax Cost of Debt |Cost of faithfulness |WACC |
|0% |8% |12% |12% |
|10 |8 |12 |11.6 |
|20 |8 |12 |11.2 |
|30 |8 |13 |11.5 |
|40 |9 |14 |12 |
|50 |10 |15 |12.5 |
|60 |12 |16 |13.6 |
b. Construct a pro forma balance sheet that indicates the firms optimal capital structure. Compare this balance sheet with the firms current balance sheet. What course of action should the firm scoop?
| |Current Balance Sheet |
|Assets |$ one C |Debt |$10 |
|Â |Â |Equity |$90 |
|Total Assets |$100 |Total Debt and Equity |$100 |
| |Pro Forma Balance Sheet |
|Assets |$100 |Debt |$20.00 |
| | |Equity...If you want to shrink a full essay, order it on our website: Orderessay
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