4. Determining the optimal capital structure Understanding the optimal capital structure Review this situation Transworld Consortium Corp. is trying to identity is optimal capital structure. Tranwold Coatian Cop has gathered the following financial information to help with the analys Equity Ratio Ta Debt Ratio 30% WACC 6.0299.40 9.71 70% 609 40% 9.750 6.75" 7.15% 50% 10.60% 50% 40 9.55 10.02% 10.78% 60% 11 304 755% 8.24% 70% 30% 12.80% 11.45 Which capital structure shown in the preceding table is Transworld Consortium Corp. optimal capital structure? O Debt ratio 40%; equity ratio = 60% O Debt ratio = 30% equity ratio - 70% O Debt ratio -70% equity ratio -30% O Debt ratio -60%; equity ratio -40% O Debt ratio - 50%; equity ratio = 50% Consider this case: Globex Corp. has a capital structure that consists of 35% debt and 65% equity. The firm's current betais 1.25, but management wanita to understand Globex Corp.'s market risk without the effect of leverage If Globex Corp. has a 25% tax rate, what is its unlevered beta? O 0.76 O 0.93 O 0.98 0 0.89 US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before tax cost of debt is 10%, and its tax rate is 25%. It currently has a levered beta of 1.25. The risk-free rate is 2,5%, and the risk premium on the market is 7%. US Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firm's level of debt will cause it before tax cost of debt to increase to 12%. First, solve for US Robotics Inc.'s unlevered beta Use US Robotics Inc's untevered beta to solve for 1.14 's levered beta with the new capital structure. 0.86 Jse US Robotics Inc.'s levered beta under the new structure, to solve for its cost of equity under the new capital structure 0.95 What will the firm's weighted average cost of capid 1.05 c) be if it makes this change in its capital structure? O 10.29% O 12.10% 9.68% O 7.87% US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before tax cost of debt is 10%, and is to is 25%. It currently has a levered beta of 1.25. The risk-free rate 25%, and the risk premium on the market is Robotics tec is considering changing its capital structure to 60% debt and 40% qatyIncreasing the level of debt will cause its before-tex.com of debt to increase to 12% First, solve for US Robotics Inc.'s unlevered beta. Use US Robotics Inc.'s unlevered beta to solve for the firm's levered beta with the new capital structure. Use US Robotics Inc.'s levered beta under the new capital structure, to solve for its cost of equity under e 2.02 Papital structure 1.92 What will the firm's weighted average cost of capital (WACC) be if it makes the change in its capital stru 2222 10.29% 12 O 12.10% 09.68% 0 7.8796 US Robotics Inc. has a current capital structure of 30% indequity. Its current before-tax cost of betti 10 s 25%. It currently has a lovered but of 1.25. The risk free 2.5 the mukemm on the main is considering changing its capital structure to 60% debt and 40% outy Increasing the firm's level of debt wil it be of debt to increase to 12 First, solve for US Robotics Inc.'s unlevered beta Use US Robotics Inc.'s unlevered bots to solve for the firm beverod beta with the new capital structure Use US Robotics Incs levered beta under the new capital structure, to solve for its cost of equity under the capital What will the firm's weighted average cost of capital (WACC) be if it makes this change its capital structure 1 640 O 10.294 13:31 O 12.10% 19.30 O 9.68% 0 7.87%