Question
Feldspar Inc. is considering the capital structure for a new division. Management has been given the following cost information: Debt/assets kd(BT Cost of Debt) ke(Cost
Feldspar Inc. is considering the capital structure for a new division. Management has been given the following cost information:
| Debt/assets |
| kd(BT Cost of Debt) |
| ke(Cost of Equity) |
| .35 |
| 7% |
| 13% |
| .40 |
| 7.5% |
| 13.6% |
| .45 |
| 8% |
| 13.8% |
| .50 |
| 9% |
| 14.6% |
| .55 |
| 10.5% |
| 16.75% |
Based on this information, what capital structure (debt/asset ratio) should management accept? Assume the marginal tax rate is 30%.
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Grow The Pie How Great Companies Deliver Both Purpose And Profit
Authors: Alex Edmans
1st Edition
1108494854,1108849482
