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Question 3 (a) Dale Instruments makes fine violins and cellos. It has 2.1 million in debt outstanding, equity valued at 3.2 million. The company pays
Question 3 (a) Dale Instruments makes fine violins and cellos. It has 2.1 million in debt outstanding, equity valued at 3.2 million. The company pays a corporate tax of 25% and its cost of equity is 11% and its cost of debt is 5%. (i) Calculate Dale Instruments' pre-tax Weighted Average Cost of Capital? (ii) Calculate Dale Instruments' (effective after-tax) Weighted Average Cost of Capital? Comment on your result. (b) Explain the difference between the trade-off theory and pecking order theory of capital structure
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