Question
1. The current risk free rate is 5.00% and the average return on the stock market for the last several years has been 15%. Twitter
1. The current risk free rate is 5.00% and the average return on the stock market for the last several years has been 15%. Twitter needs a total of $41.30 billion for its business and is considering the funding options specified in the table below. The tax rate for the firm is 39%. Complete the table by filling in the values in the empty columns. Notice as the dollar amount of debt and equity for Twitter changes, its equity cost of capital and debt cost of capital changes. Based on the information in the complete table, the WACC for the firm when it is 85% financed with equity is:
$ Equity | $ Debt | % Equity funding | % Debt funding | Beta | Equity cost of capital | Debt cost of capital | WACC |
$41.30B | $00.00B | 0.84 | 3.88% | ||||
$35.11B | $06.20B | 0.93 | 4.20% | ||||
$28.91B | $12.39B | 1.06 | 4.37% | ||||
$22.72B | $18.59B | 1.26 | 5.13% | ||||
$16.52B | $24.78B | 1.61 | 7.16% | ||||
$10.33B | $30.98B | 2.38 | 8.54% | ||||
$04.13B | $37.17B | 5.45 | 9.95% |
2. Use all of the information in the previous question and table. Based on the information in the complete table, the WACC for the firm when it is 55% financed with equity is:
3. Use all of the information in the previous question and table. Based on the information in the complete table, the WACC for the firm when it is 25% financed with equity is:
4. Use all of the information in the previous question and table. Based on the information in the complete table, the optimal capital structure for twitter is:
45% financed with equity and 55% financed with debt
55% financed with equity and 45% financed with debt
40% financed with equity and 60% financed with debt
60% financed with equity and 40% financed with debt
70% financed with equity and 30% financed with debt
you don't have to answer #1. please answer for 2, 3, 4
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