Prompt: After reviewing the data in the table, respond to the problems below. In

Question

Prompt: After reviewing the data in the table, respond to the problems below. Indicate the answer you believe is correct.

Question 2: Determine the weight on debt capital that should be used to calculate Zonk’s weighted-average cost of capital:

A. 21.7%

B. 21%

C. 50%

D. 58.2%

Question 3: Determine the weight on equity capital that should be used to calculate Zonk’s weighted-average cost of capital:

A. 79%

B. 78.3%

C. 41.8%

D. 50%

Question 4: Using the above information, calculate Zonk’s weighted-average cost of capital:

A. 11.5%

B. 7.97%

C. 7.48%

D. 10.90%

Question 6: Assume that Zonk is a potential leveraged buyout candidate. Assume that the buyer intends to put in place a capital structure that has 70 percent debt with a pretax borrowing cost of 14 percent and 30 percent common equity. Compute the weighted average cost of capital for Zonk based on the new capital structure.

A. 8.85%

B. 12.56%

C. 13.01%

D. 9.94%

Zonk Corporation Data $7,460 $3,652 10.5% Total assets Interest-bearing debt Average pretax borrowing cost Common equity: Book value Market value Income tax rate Market equity beta $2,950 $13,685 35% 1.13

Explanation / Answer

Answer :- Particular Amount Debt 3652 Equity 13685 Total 17337 Solution :-1 Weight of debt Capital 3652 / 17337 = 21% Therefore the correct answer is (B) Solution :-2 Weight of Equity 13685 / 17337 = 79% Therefore the correct answer is (A) The cost of equity in this question Is not calculated as the market risk premium is not given So other two parts can not be solved Feel free to ask any query as your satisfaction is very valuable

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