2.Finding the Target Capital Structure ( Needs to be solved)

Fama's Llamas has a WACC of 8.4 percent. The company's cost of equity is Il percent, and its pretax cost of debt is 5.8 percent. The tax rate is 25 percent. What is the company's target debt-equity ratio?

3.Calculating the WACC ( Needs to be solved)

In Problem 11, suppose the most recent dividend was $3.85 and the dividend growth rate is 5 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 21 percent. What is the company's WACC?

Problem 11 : (Already solved)

(Book Value versus Market Value Dani Corp. has 5.5 million shares of common stock outstanding. The current share price is $83, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $80 million, has a coupon rate of 5.5 percent, and sells for 109 percent of par. The second issue has a face value of $45 million, has a coupon rate of 5.8 percent, and sells for 108 percent of par. The first issue matures in 21 years, the second in six years.

a. What are the company's capital structure weights on a book value basis? = 1803; .8197

b. What are the company's capital structure weights on a market value basis? = .7707; .2293)

Thanks!