Question
(a) What is the company's optimal capital structure and why? (b) Use theories of capital structure to explain why Pound Industries' WACC would at first
(a) What is the company's optimal capital structure and why?
(b) Use theories of capital structure to explain why Pound Industries' WACC would at first decrease and then increase as more debt is used in the capital structure.
QUESTION 1 You have the following information on Pound Industries Ltd: Debt/Assets Bond After-tax cost WACC Ratio Rating of debt 0% n/a 4.8% 12.00% 10 Aa 4.8 11.64 20 5.0 11.32 30 A 5.4 11.10 40 Baa 6.0 11.04 50 Ba 7.2 11.40 60 Caa 9.0 12.36 (a) What is the company's optimal capital structure and why? (b) Use theories of capital structure to explain why Pound Industries' WACC would at first decrease and then increase as more debt is used in the capital structure.
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Intermediate Financial Management
Authors: Brigham, Daves
10th Edition
978-1439051764, 1111783659, 9780324594690, 1439051763, 9781111783655, 324594690, 978-1111021573
