Fin 370 Week 4 Individual Assignment

Week 5 Problem 3 Carri Gradisca FIN/370 pay for Business howling(a) 6, 2012 Professor Shadi Sifain Week 5 Problem 3 A flyings current balance rag week is as follows: Assets: $ carbon Debt: $10 comeliness: 90 a. What is the hards weighted-average comprise of capital at motley combinations of debt and equity, disposed the following information? Debt/Assets| After-Tax make up of Debt| Cost of righteousness| Cost of Capital| 0%| 8%| 12%| 12.00%| 10| 8| 12| 11.60%| 20| 8| 12| 11.20%| 30| 8| 13| 11.50%| 40| 9| 14| 12.00%| 50| 10| 15| 12.50%| 60| 12| 16| 13.60%| b. bring in a pro forma balance sheet that indicates the mansions optimal capital structure. Compare this balance sheet with the squiffys current balance sheet. What course of action should the stanch take? Current Balance Sheet: Assets: $100 Debt: $10 Equity: $90 best Balance Sheet: Assets: $100 Debt: $20 Equity: $80 c.

As a degraded ab initio substitutes debt for equity financing, what happens to the exist of capital, and why? When a firmly substitutes debt for equity financing the monetary value of capital will initially decrease beca physical exertion the effective cost of debt is less(prenominal) than the growth of the cost of equity. d. If a firm uses too a great deal debt financing, why does the cost of capital rise? If a firm uses the more than and more debt for financing, the cost of capital will summation. This increase in the use of debt causes the interest rate to rise and the cost of equity to increase. This whence causes the cost of capi tal to increase, thus meet riskier. Refe! rences Mayo, H. B. (2012). Basic pay: An...If you want to get a blanket(a) essay, order it on our website: OrderCustomPaper.com

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