Question
Washington Paper Company has estimated the costs of debt and equity capital with bankruptcy and agency costs for various proportions of debt in its capital
Washington Paper Company has estimated the costs of debt and equity capital with bankruptcy and agency costs for various proportions of debt in its capital structure as follows:
tax rate 0.35
Debt Pre-tax cost of AT cost of Weight of Weighted Cost Ratio debt Debt Equity Cost of equity of Capital
0.00 | 0.0% | 100.00% | 14.0% | ||
0.10 | 7.0% | 90.00% | 14.2% | ||
0.20 | 7.6% | 80.00% | 14.6% | ||
0.25 | 7.8% | 75.00% | 14.8% | ||
0.30 | 8.2% | 70.00% | 15.4% | ||
0.35 | 8.5% | 65.00% | 16.0% | ||
0.40 | 8.8% | 60.00% | 17.0% | ||
0.45 | 9.0% | 55.00% | 18.0% | ||
0.50 | 9.5% | 50.00% | 20.0% | ||
0.55 | 10.0% | 45.00% | 22.0% | ||
0.60 | 11.0% | 40.00% | 26.0% |
In the provided excel file calculate the WACC and determine the optimal capital structure?
Chap 15 Dividend Policy
Why do shareholders view a stable increase in dividends and share repurchases? Does dividend signaling matter, and if so why and if not why not?
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Financial and Managerial Accounting
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac
12th edition
978-1133952428, 1285078578, 1133952429, 978-1285078571
