Question
please help with excel step-by-step (detailed) much appreciated **IMPORTANT** PLEASE MAKE SURE TO USE EXCEL WITH FORMULAS Don's Athletics is trying to determine its optimal
please help with excel step-by-step (detailed) much appreciated **IMPORTANT** PLEASE MAKE SURE TO USE EXCEL WITH FORMULAS
Don's Athletics is trying to determine its optimal capital structure. The companys capital structure consists of debt and common stock. In order to estimate the cost of debt, the company has produced the following table:
Percent financed with debt (wd) | Percent financed with equity (wc) | Debt-to-equity ratio (D/S) | Bond rating | Before-tax cost of debt |
0.30 | 0.70 | 0.30/0.70 = 0.43 | A | 8.0% |
0.40 | 0.60 | 0.40/0.60 = 0.67 | BBB | 8.8% |
0.50 | 0.50 | 0.50/0.50 = 1.00 | BB | 9.6% |
The company uses the CAPM to estimate its cost of common equity, rs. The risk-free rate is 5% and the market risk premium is 6%. Don's Athletics estimates that if it had no debt its beta would be 1.0. (Its unlevered beta, bU, equals 1.0.) The companys tax rate, T, is 40%. On the basis of this information, what is the companys optimal capital structure, and what is the firms cost of capital at this optimal capital structure?
PLEASE HELP WITH EXCEL STEP-BY-STEP (IN FULL detail) much appreciated **IMPORTANT** I WANT TO LEARN
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