Repeat cost of capital calculations in assuming market value weights instead of book value weights.

Calculate the Kc for each case below. (Round the dollar amount to one decimal place. Round the ratios to three decimal places. Round Kd, Ke,Kc to two decimal places).

Heels Inc., Optimal Capital Structure Example Expressed in $000s unless otherwise noted Assets $1,800 $2,180 $2,560 $2,940 Equity (book value) $1,800 $1,800 $1,800 $1,800 Debt (book and market value) $0 $380 $760 $1,140 Debt/Assets (%) 0% 17.4% 29.7% 38.8% EBIT/Assets (%) 27.6% 27.6% 27.6% 27.6% Kd (before-tax) 10.27% 10.86% 11.27% 12.67% Kd (after-tax) 6.68% 7.06% 7.33% 8.24% Ke 17.75% 18.81% 19.63% 24% EBIT $496.8 $601.7 $707 $811.4 Interest $0 $41.3 $82.5 $123.8 Earnings before tax $496.8 $560.4 $624.5 $687.6 Tax @ 35% $173.9 $196.1 $218.6 $240.7 Earnings after tax $322.9 $364.3 $405.9 $446.9 Equity (market value) $1,819.2 $1,936.7 $2,067.8 $1,862.1 Shares (thousands) 100 100 100 100 Price per share $18.19 $19.37 $20.68 $18.62 EPS $3.23 $3.64 $4.06 $4.47 Earnings multiple (times) 5.63 5.32 5.09 4.17 Kc (based on BV weights) 17.75% 16.77% 15.98% 17.89%

FILL IN THE BLANK 1 2 3 4

Equity (market Value)

Debt (Market value)

Assets (market Value)

equity/assets

debt/assets

cost of equity

after-tax cost of debt

WACC

ENTER ANY NUMBER IN THE EDIT FIELDS AND THEN CONTINUE TO THE NEXT QUESTION.