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Can I get help with the attached homework? I am having a little trouble with solving this homework problem. Optimal Capital Structure Forum Reacher Technology
Can I get help with the attached homework? I am having a little trouble with solving this homework problem.
Optimal Capital Structure Forum Reacher Technology has consulted with investment bankers and determined the interest rate it would pay for different capital structures, as shown below. Data for the risk-free rate, the market risk premium, an estimate of Reacher's unlevered beta, and the tax rate are also shown below. Based on this information, what is the firm's optimal capital structure and what is the weighted average cost of capital at the optimal structure? Percent Financed with Debt (wb) 0% 10% 20% 30% 40% 50% 60% 70% Input Data Risk-free rate Market risk premium Unlevered beta Tax rate Before-tax Cost Debt (rb) 6.0% 6.1% 7.0% 8.0% 10.0% 12.5% 15.5% 18.0% 4.5% 5.5% 0.8 40.0% Fill in formulas in the yellow cells to find the optimum capital structure. Debt/Value Ratio (wd) 0% 10% 20% 30% 40% 50% 60% 70% Equity/Value Debt/Equity After-Tax Cost of Ratio (ws) Ratio (wd/ws) Debt (rb) 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 Levered Beta Cost of Equity WACC 0.00 0.11 0.25 0.43 0.67 1.00 1.50 2.33 WACC at optimum debt ratio = Optimum debt ratio = Hint: Optimum debt ratio is when WACC is at its minimumStep by Step Solution
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