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Problem 13-7 eBook Colorado Coal Company has estimated the costs of debt and equity capital (with bankruptcy and agency costs) for various proportions of
Problem 13-7 eBook Colorado Coal Company has estimated the costs of debt and equity capital (with bankruptcy and agency costs) for various proportions of debt in its capital structure. The company's income tax rate is 40 percent. a. Fill in the missing entries in the table. Round your answers to two decimal places. Debt ratio [B/B+E] Pre-tax cost of debt (kd) Cost of equity (ke) Weighted average cost of capital (ka) 0.00 15.00% % 0.15 15.90 14.15 % 0.30 10.00 17.90 0.45 % 20.30 14.41 % 16.00 23.10 15.00 b. Use the completed table to determine the capital structure (that is, debt ratio) that minimizes the firm's weighted average cost of capital. % debt and % equity minimizes the firm's weighted cost of capital. Icon Key Question 14 of 25 Check My Work (10 remaining) Check My Work (10 remaining)
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