Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Evans Technology has the following capital structure. Debt 3 0 % Common equity 7 0 The aftertax cost of debt is 7 . 5 0
Evans Technology has the following capital structure.
Debt
Common equity
The aftertax cost of debt is percent, and the cost of common equity in the form of retained earnings is percent.
What is the firms weighted average cost of capital and debt and common equity?
Note: Do not round intermediate calculations. Input your answers as a percent rounded to decimal places.
An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is percent debt and percent equity.
Under this new and more debtoriented arrangement, the aftertax cost of debt is percent, and the cost of common equity in the form of retained earnings is percent.
Recalculate the firm's weighted average cost of capital.
Note: Do not round intermediate calculations. Input your answers as a percent rounded to decimal places.
Which plan is optimal in terms of minimizing the weighted average cost of capital?
multiple choice
Plan A
Plan B
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started