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WestGas Conveyance, Inc. WestGas Conveyance, Inc., is a large U . S . natural gas pipeline company that wants to raise $ 1 2 0
WestGas Conveyance, Inc. WestGas Conveyance, Inc., is a large US natural gas pipeline company that wants to raise $ million to finance expansion. WestGas wants a capital structure that is debt and equity. Its corporate combined federal and state income tax rate is WestGas finds that it can finance in the domestic US capital market at the rates listed in the popup window: Both debt and equity would have to be sold in multiples of $ million, and these cost figures show the component costs, each, of debt and equity if raised by debt and equity. A London bank advises WestGas that US dollars could be raised in Europe at the following costs, also in multiples of $ million, while maintaining the capital structure. Each increment of cost would be influenced by the total amount of capital raised. That is if WestGas first borrowed $ million in the European market at matched this with an additional $ million of equity, additional debt beyond this amount would cost the United States and Europe. The same relationship holds for equity financing. a Calculate the lowest average cost of capital for each increment of $ million of new capital, where WestGas raises $ million in the equity market and an additional $ in the debt market at the same time. b If WestGas plans an expansion of only $ million, how should that expansion be financed? c What will be the weighted average cost of capital for the expansion? a If WestGas plans an expansion of $ million, what is the lowest average cost of capital for the first $ million of new capital? Round to two decimal places. Data table Click on the following icon in order to copy its contents into a spreadsheet. tableCosts of Raising Capital in the Market,tableCost ofDomestic EquitytableCost ofDomestic DebttableCost ofEuropean EquitytableCost ofEuropean DebtUp to $ million of new capital,
WestGas Conveyance, Inc. WestGas Conveyance, Inc., is a large US natural gas pipeline company that wants to raise $ million to finance expansion. WestGas wants a capital structure that is debt and equity. Its corporate combined federal and state income tax rate is WestGas finds that it can finance in the domestic US capital market at the rates listed in the popup window: Both debt and equity would have to be sold in multiples of $ million, and these cost figures show the component costs, each, of debt and equity if raised by debt and equity. A London bank advises WestGas that US dollars could be raised in Europe at the following costs, also in multiples of $ million, while maintaining the capital structure. Each increment of cost would be influenced by the total amount of capital raised. That is if WestGas first borrowed $ million in the European market at matched this with an additional $ million of equity, additional debt beyond this amount would cost the United States and Europe. The same relationship holds for equity financing.
a Calculate the lowest average cost of capital for each increment of $ million of new capital, where WestGas raises $ million in the equity market and an additional $ in the debt market at the same time.
b If WestGas plans an expansion of only $ million, how should that expansion be financed?
c What will be the weighted average cost of capital for the expansion?
a If WestGas plans an expansion of $ million, what is the lowest average cost of capital for the first $ million of new capital?
Round to two decimal places.
Data table
Click on the following icon in order to copy its contents into a spreadsheet.
tableCosts of Raising Capital in the Market,tableCost ofDomestic EquitytableCost ofDomestic DebttableCost ofEuropean EquitytableCost ofEuropean DebtUp to $ million of new capital,
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