4. a. Proportion ofDebt:EQ Cost of Capital 0.00:1.0 ka = 12.0% 0.10:0.90 ka = (0
ID: 2661457 • Letter: 4
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4. a. Proportion ofDebt:EQ Cost of Capital 0.00:1.0 ka = 12.0% 0.10:0.90 ka = (0.10)(4.7%) + 0.90(12.1%) = ??.?% 0.20:0.80 ka = (0.20)(4.9%) + (0.80)(12.5%) = ??.?% 0.30:0.70 ka = (0.30)(5.1%) + (0.70)(13.0%) = ??.?% 0.40:0.60 ka = (0.40)(5.5%) + (0.60)(13.9%) = ??.?% 0.50:0.50 ka = (0.50)(6.1%) + (0.50)(15.0%) = ??.?% 0.60:0.40 ka = (0.60)(7.5%) + (0.40)(17.0%) = ??.?% Thusly, the ideal capital structure isapproximately ??% debt and ??%equity. b. 30% debt and 70% equity: ka =??.??% Optimal: ka =??.??% Difference: 0.??% 4. a. Proportion ofDebt:EQ Cost of Capital 0.00:1.0 ka = 12.0% 0.10:0.90 ka = (0.10)(4.7%) + 0.90(12.1%) = ??.?% 0.20:0.80 ka = (0.20)(4.9%) + (0.80)(12.5%) = ??.?% 0.30:0.70 ka = (0.30)(5.1%) + (0.70)(13.0%) = ??.?% 0.40:0.60 ka = (0.40)(5.5%) + (0.60)(13.9%) = ??.?% 0.50:0.50 ka = (0.50)(6.1%) + (0.50)(15.0%) = ??.?% 0.60:0.40 ka = (0.60)(7.5%) + (0.40)(17.0%) = ??.?% Thusly, the ideal capital structure isapproximately ??% debt and ??%equity. b. 30% debt and 70% equity: ka =??.??% Optimal: ka =??.??% Difference: 0.??%Explanation / Answer
4. a. Proportion ofDebt:EQ Cost of Capital 0.00:1.0 ka = 12.0% 0.10:0.90 ka = (0.10)(4.7%) + (0.90)(12.1%) = 11.36% 0.20:0.80 ka = (0.20)(4.9%) + (0.80)(12.5%) = 10.98% 0.30:0.70 ka = (0.30)(5.1%) + (0.70)(13.0%) = 10.63% 0.40:0.60 ka = (0.40)(5.5%) + (0.60)(13.9%) = 10.54% 0.50:0.50 ka = (0.50)(6.1%) + (0.50)(15.0%) = 10.55% 0.60:0.40 ka = (0.60)(7.5%) + (0.40)(17.0%) = 11.30% Thusly, the ideal capital structure isapproximately 40% debt and 60% equity. b. 30% debt and 70% equity: ka = 10.63% Optimal: ka =10.54% Difference: 0.09%
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