Problem 22-10 The financial manager has determined the following schedules for the cost of funds: Debt ratio 0% Cost of Debt 3% Cost of Equity 16% 10 3 16 20 3 16 30 3 16 40 3 17 5 18 50 60 8 19 %. a. Determine the firm's optimal capital structure. Round your answer to two decimal places. The optimal capital structure consists of -Select- v % debt resulting in the cost of capital equal to b. Construct a simple pro forma balance sheet that shows the firm's optimal combination of debt and equity for its current level of assets. Round your answers to the nearest dollar. Balance Sheet $300 Debt Assets $ Equity $ 300 C. An investment costs $500 and offers annual cash inflows of $108 for six years. Should the firm make the investment? Use Appendix D to answer the question. Round your answer to the nearest whole number. The investment -Select be made since the internal rate of return that is % -Select the cost of capital. d. If the firm makes this additional investment, how should its balance sheet appear? Round your answers to the nearest dollar. Balance Sheet Assets $ Debt Equity $ e. If the firm is operating with its optimal capital structure and a $500 asset yields 30.0 percent, what return will the stockholders earn on their investment in the asset? Round your answer to two decimal places. % Problem 22-10 The financial manager has determined the following schedules for the cost of funds: Debt ratio 0% Cost of Debt 3% Cost of Equity 16% 10 3 16 20 3 16 30 3 16 40 3 17 5 18 50 60 8 19 %. a. Determine the firm's optimal capital structure. Round your answer to two decimal places. The optimal capital structure consists of -Select- v % debt resulting in the cost of capital equal to b. Construct a simple pro forma balance sheet that shows the firm's optimal combination of debt and equity for its current level of assets. Round your answers to the nearest dollar. Balance Sheet $300 Debt Assets $ Equity $ 300 C. An investment costs $500 and offers annual cash inflows of $108 for six years. Should the firm make the investment? Use Appendix D to answer the question. Round your answer to the nearest whole number. The investment -Select be made since the internal rate of return that is % -Select the cost of capital. d. If the firm makes this additional investment, how should its balance sheet appear? Round your answers to the nearest dollar. Balance Sheet Assets $ Debt Equity $ e. If the firm is operating with its optimal capital structure and a $500 asset yields 30.0 percent, what return will the stockholders earn on their investment in the asset? Round your answer to two decimal places. %
