Review this situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc. has gathered the following financial information to help with the analysis. Debt Ratio Is WACC ra 7.00% 30% 10.50% 8.61% Equity Ratio 70% 60% 50% 40% 7.20% 10.80% 8.21% 50% 7.70% 11.40% 8.01% 60% 40% 8.90% 12.20% 8.08% 70% 30% 10.30% 13.50% 8.38% Which capital structure shown in the preceding table is Universal Exports Inc.'s optimal capital structure? Debt ratio - 30% equity ratio = 70% Debt ratio 40% equity ratio - 60% Debt ratio - 70%, equity ratio - 30% Debt ratio = 6095; equity ratio - 40% Debt ratio - 50% equity ratio -50% Consider this case: Globex Corp. currently has a capital structure consisting of 30% debt and 70% equity. However, Globex Corp.'s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 2.5%, the market risk premium is 7.5%, and Globex Corp.'s beta is 1.15. If the firm's tax rate is 25%, what will be the beta of an all-equity firm if its operations were exactly the same? Now consider the case of another company US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 6%, and its tax rate is 25%. It currently has a levered beta of 1.15. The risk-free rate is 2.5%, and the risk premium on the market is 7,5%. US Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity, increasing the firm's level of debt will cause its before-tax cost of debt to increase to 8% First, solve for US Robotics Inc.'s unlovered beta, Globex Corp. currently has a capital structure consisting of 30% debt and 70% equity. However, Globex Corp.'s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 2.5%, the market risk premium is 7.5%, and Globex Corp.'s beta is 1.15. If the firm's tax rate is 25%, what will be the beta of an all-equity firm if its operations were exactly the same? 0.96 Now consider the case of another company: 0.83 1.00 US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of 96, and its tax rate 0.87 is 25%. It currently has a levered beta of 1.15. The risk-free rate is 2.5%, and the risk premium on the mar 5%. US Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firm's level of debt will cause its before-tax cost of debt to increase to 8%. First, solve for US Robotics Inc.'s unlevered beta is 25%. It currently has a levered beta of 1.15. The risk-free rate is 2.5%, and the risk premium on the market is 7.5%. US Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firm's level of debt will cause its before-tax cost of debt to increase to 8%. First, solve for US Robotics Inc.'s unlevered beta. is levered beta with the new capital structure. Use US Robotics Inc.'s unlevered beta to solve for 0.78 0.87 Use U5 Robotics Inc.'s levered beta under the new 0.96 structure, to solve for its cost of equity under the new capital structure. What will the firm's welghted average cost capil 1.04 C) be if it makes this change in its capital structure? 8.679 7.6596 9.699 10.20% und Now Saves Continue ASSN 35: Capital Structure and Leverage is 25%. It currently has a levered beta of 1.15. The risk-free rate is 2.5%, and the risk premium on the market is 7.5%. US Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firm's level of debt will cause its before-tax cost of debt to increase to 8%. First, solve for US Robotics Inc.'s unlevered beta. Use US Robotics Inc.'s unlevered beta to solve for the firm's levered beta with the new capital structure. Use US Robotics Inc.'s levered beta under the new capital structure, to solve for its cost of equity under the new capital structure. What will the firm's weighted average cost of capital (WACC) be if it makes this change in its capital structure? O 8.67% 7.65% 9.6999 @ 10.20% First, solve for US Robotics Inc.'s unlevered beta. Use US Robotics Inc.'s unlevered beta to solve for the firm's levered beta with the new capital structure. Use US Robotics Inc.'s levered beta under the new capital structure, to solve for its cost of equity undert 1.85 Kapital structure. 1.67 What will the firm's weighted average cost of capital (WACC) be if it makes this change in its capital strug 8.67% 2.04 1.76 O 7.65% 9.69% 10.20% First, solve for US Robotics Inc.'s unlevered beta. Use US Robotics Inc.'s unlevered beta to solve for the firm's levered beta with the new capital structure. Use US Robotics Inc.'s levered beta under the new capital structure, to solve for its cost of equilty under the new capital structure. 13.1049 what will the firm's weighted average cost of capital (WACC) be if it makes this change in its capital structure? 16.380% 8.6796 14.7429 7.65% 18.8379 9.69% 10.20% Code It Now Save & Continue
