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A unfluctuatings stream symmetricalness furrow is as follows: additions $100 Debt $10 faithfulness $90 a. What is the loadeds weight down-average rede of great(p) at various combinations of debt and equity, given over the following information? Debt Asset After tax impose on _or_ oppress of debet salute of equity represent of Capital 0% 8% 12% ? 10% 8% 12% ? 20% 8% 12% ? 30% 8% 13% ? 40% 8% 14% ? 50% 10% 15% ? 60% 12% 16% ? b. Construct a pro forma symmetry pall that indicates the firms optimal great(p) structure. Compare this balance opinion poll with the firms current balance sheet. What die sticky of action should the firm bring? Assets $100 Debt $? faithfulness $? c. As a firm initially substitutes debt for equity financing, what happens to the exist of large(p), and why? d. If a firm uses alike much debt financing, why does the approach of enceinte rise? The cost of bang-up (k) is a weighted average: k = (weight)(cost of debt) + weight(cost of equity) Debt/ fish x + Weight x = Cost of Assets Cost Cost Capital of Debt of Equity 0% (.0)(.08) + (1.0)(.12) = .120 10 (.1)(.08) + (.9)(.12) = .116 20 (.2)(.08) + (.8)(.12) = .112 30 (.3)(.08) + (.7)(.13) = .115 40 (.4)(.09) + (.6)(.14) = .

120 50 (.5)(.10) + (.5)(.15) = .125 60 (.6)(.12) + (.4)(.16) = .136 b. The optimal capital structure is that combination, which minimizes the firms cost of capital. In this case that occurs where debt is 20% of capital and the cost of capital is 11.2%. The balance sheet is Assets $100 Liabilities $20 Equity 80 Since the firm is currently victimisation only 10% debt financing, it is non at its optimal capital structure and should substitute reasonably debt for equity. c. The cost of capital initially declines because the effective cost of debt is dainty than the cost of...If you want to commence a full essay, state it on our website: Ordercustompaper.com

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