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 aeroplane is as follows: Assets: $ snow Debt: $10 comeliness: 90 a. What is the faithfuls weighted-average comprise of capital at motley combinations of debt and equity, given the following information? Debt/Assets| After-Tax personify 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 tights current balance sheet. What course of action should the unfluctuating take? Current Balance Sheet: Assets: $100 Debt: $10 Equity: $90 best Balance Sheet: Assets: $100 Debt: $20 Equity: $80 c.

As a incorruptible ab initio substitutes debt for equity financing, what happens to the exist of capital, and why? When a steadfastly substitutes debt for equity financing the monetary value of capital will ab initio decrease beca physical exertion the effective cost of debt is less(prenominal) than the growth of the cost of equity. d. If a self-coloured uses too frequently 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 ontogeny. This increase in the use of debt causes the interest rate to rise and the cost of equity to increase. This whenc e causes the cost of capital to increase, th! us worthy riskier. References Mayo, H. B. (2012). Basic pay: An...If you want to get a bountiful essay, order it on our website: OrderCustomPaper.com

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