Question 9:

A company is planning to improve its capital structure. Analyze the current and proposed structures to determine the impact on the company's Weighted Average Cost of Capital (WACC).

• Current Structure:
  • Debt: $200,000 at 6%
  • Equity: $300,000 at 12%
• Proposed Structure:
  • Debt: $300,000 at 6%
  • Equity: $200,000 at 12%

Requirements:

1. Calculate the current WACC.
2. Calculate the proposed WACC.
3. Determine if the proposed capital structure is beneficial.