Question
Given the following table (assume no preferred stock is outstanding or to be issued), what should be the WACC at 30% debt:? Table 14.2. Cost
- Given the following table (assume no preferred stock is outstanding or to be issued), what should be the WACC at 30% debt:?
Table 14.2. Cost of Capital Projections for Exercise 1
| % debt | cost of debt | after-tax cost of debt (T=25%) | % equity | cost of equity | WACC |
| 0% | 6.4% |
|
| 9.0% |
|
| 10% | 6.4% |
|
| 9.8% |
|
| 20% | 6.9% |
|
| 10.4% |
|
| 30% | 7.7% |
|
| 11.0% |
|
| 40% | 8.4% |
|
| 12.5% |
|
| 50% | 9.2% |
|
| 14.4% |
|
| 60% | 10.0% |
|
| 16.8% |
|
| 70% | 11.5% |
|
| 19.0% |
|
| 80% | 13.0% |
|
| 25.0% |
|
| 90% | 18.0% |
|
| 32.0% |
|
| 100% | 25.0% |
|
| 47.0% |
|
A firm believes that if sales increase by 3%, their Net Income will increase by 5%. What is there degree of total leverage?
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
Financial Markets And Institutions A Modern Perspective
Authors: Anthony Saunders, Marcia Millon Cornett, Marcia Cornett
2nd Edition
007294109X, 978-0072941098
