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As the debt to assets increases from 0 % to 1 0 0 % , the cost of debt financing can be estimated with the
As the debt to assets increases from to the cost of debt financing can be estimated with the following function: debt
Use the same function for the cost of equity change out the debt for the equity in the equation and a tax rate of with a dividend payout ratio of and an EPS of $ There are no preferred shares.
Make a table of debt to assets with the cost of debt, the after tax cost of debt, and the cost of equity use each level of debt from to Graph these functions.
Set up an equation for the WACC and use the Solver function in Excel to find the minimum cost of capital.
Enter all answers in percent with no ie one decimal place is sufficient since there is a wide tolerance for numeric answer.
Use the graph to find the cost of equity with debt
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