Need help with the equations

The OCS project requires you to determine the optimum capital structure. - Microsoft Corp

Sample Combination WACC and OCS Spread Sheet.- Attached

Complete the OCS project according to the assignment instructions. For example:

• Use Hamada's equation to determine the optimum.
• Should your company take on more debt, repurchase stock, have a seasoned equity offering? Justify your answers

Estimating Optimal Capital Structure (Millions of Dollars) Percent of Firm Financed with Debt (Wa) 10% 15% 20% 25% 30% 35% 40% 1. WE 90.00% 85.00% 80.00% 75.00% 70.00% 65.00% 60.00% 2. 2.80% 3.00% 3.26% 3.50% 4.00% 5.00% 5.75% 13. b 1.12 1.18 1.25 1.33 1.41 1.51 1.63 4. 10. 18% 10.51% 10.87% 11.29% 11.77% 12.32% 12.96% 5. Ta (1-T) 2.49% 2.67% 2.90% 3.12% 3.56% 4.45% 5.12% 6. WACC 9.41% 9.33% 9.28% 9.25% 9.31% 9.56% 9.82% Notes: 1. The percent financed with equity is: Ws = 1 - Wa 2. The interest rate on debt, ra, is obtained from investment bankers. The levered beta is estimated using Hamada's formula, and unlevered beta of by = x and a tax rate of 39%: b = bu [1 + (1-T) (wo/w=)]- 4. The cost of equity is estimated using the CAPM formula with a risk-free rate of 2.87% and a market risk premium of 6.54%: Is = [RF + (RPM)b. 5. The after-tax cost of debt is ro (1-T), where T = 39%. 6. The weighted average cost of capital is calculated as: WACC = WE Is + Wa fa (1-T).Optimum Capital Structure Problem (Millions of Dollars Except Per Share Data) NUMBERS IN RED MUST BE INPUTTED, NUMBERS IN BLUE ARE CALCULATED Input Data (Millions Except Per Share Data) Data From: Tax rate 11% Debt (D) $74,243,000,000.00 Number of shares (n) 7,753,000,000 Stock price per share (P) $151.38 Capital Structure (Millions Except Per Share Data) Market value of equity (S = P x n) $1, 173,649, 140,000.00 Total value (V = D + S) $1,247,892, 140,000.00 Percent financed with debt (W. = D/V) 5.9% Percent financed with stock (w= = S/) 94. 1% Cost of Capital Data From Cost of debt (ra) 5.73% Beta (b) 1.08 Risk-free rate ([RF) 4.00% Market risk premium (RPM) 5.50% Cost of equity ([= = [RF + b x RPM ) 9.94% Cost of Equity from Dividend Growth Model Future Dividend Growth Rate 0.15% Last Dividend $ 0.3931 Share Price $ (4/5/13) 151.38 Cost of Equity from Dividend Growth Model 0.41% Cost of Equity from Bond Plus Markup Cost of debt 5.73% Risk Markup 7.14% Cost of Equity from Bond Plus Markup 12.87% Average rs 7.7% WACC 7.58%