Question
. Colorado Coal Company has estimated the costs of debt and equity for various proportion of debt in its capital structure. The companys income tax
. Colorado Coal Company has estimated the costs of debt and equity for various proportion of debt in its capital structure. The companys income tax rate is 40 percent.
| Debt Ratio(D/D+E) | Pretax Cost of Debt | Cost of equity | WACC |
| 0.00 | - |
| 12% |
| 0.15 |
| 13.0% | 11.68% |
| 0.30 | 8.00% | 14.5% |
|
| 0.45 |
| 16.5% | 11.775% |
|
| 14.00% | 19.0% | 12.64% |
- Fill in the missing entries in the table.
- Determine the capital structure (that is , debt ratio) that minimize the firms WACC.
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Fundamentals Of Financial Institutions Management
Authors: Marcia Cornett, Anthony Saunders
1st Edition
0256253676, 9780256253672
