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Giving the following 2 capital structures available to fund a project: Capital Structure A Capital Structure B Sources of fund Weight Source of fund Weight
Giving the following 2 capital structures available to fund a project:
Capital Structure A |
| Capital Structure B | |||||
Sources of fund | Weight |
| Source of fund | Weight |
| ||
Common shares | 25% |
| Preferred shares | 25% |
| ||
Bonds | 20% |
| Loan | 35% |
| ||
Retained earnings | 45% |
| Bond | 35% |
| ||
Loan | 10% |
| Common shares | 5% |
| ||
If both capital structures have WACC of 12.5%, which capital structure you recommend giving that the finance manager is risk seeker (taker)? Why?
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