Fin 370 Week 4 Individual Assignment

Week 5 Problem 3 Carri Gradisca FIN/370 finance for Business howling(a) 6, 2012 Professor Shadi Sifain Week 5 Problem 3 A flyings current balance rag is as follows: Assets: $ coke Debt: $10 comeliness: 90 a. What is the fast(prenominal)s weighted-average comprise of capital at motley combinations of debt and equity, attached the following information? Debt/Assets| After-Tax be 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 knock-down(a)s current balance sheet. What course of action should the strong take? Current Balance Sheet: Assets: $100 Debt: $10 Equity: $90 best Balance Sheet: Assets: $100 Debt: $20 Equity: $80 c.

As a tighten ab initio substitutes debt for equity financing, what happens to the exist of capital, and why? When a satisfying substitutes debt for equity financing the address of capital will ab initio decrease beca physical exertion the effective cost of debt is slight than the growth of the cost of equity. d. If a sure uses too such(prenominal) 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 join on. 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 cap ital to increase, thus decorous riskier. ! References Mayo, H. B. (2012). Basic pay: An...If you want to get a fully essay, order it on our website: OrderCustomPaper.com

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