Purchase Solution

Performa Balance Sheet - Weighted Average Cost of Capital

Not what you're looking for?

Ask Custom Question

Weighted Average Cost of Capital

1. The after-tax cost of debt and the cost of equity as follows for a firm at various percentages of debt in its capital structure. Calculate the firm's weighted average cost of capital at each combination of debt and equity:

Debt / Assets After-Tax Cost of Debt Cost of Equity Weighted Average Cost of Capital
0% 6% 10% ?
10% 6% 10% ?
20% 7% 10% ?
30% 8% 11% ?
40% 9% 13% ?
50% 10% 14% ?
60% 12% 16% ?

2. A firm's current balance sheet is as follows:

Assets $100,000 Debt $10,000
Equity $90,000

Construct a pro forma balance sheet that indicates the firm's optimal capital structure. Compare this balance sheet with the firm's current balance sheet. What course of action should the firm take?

3. Explain what happens to a firm's weighted average cost of capital when there is no debt, when they first introduce some debt into the capital structure, and as the firm continues to increase the percentage of debt in the capital structure.

Purchase this Solution

Solution Summary

Performa balance sheet and the weighted average cost of capitals are examined.

Purchase this Solution

Free BrainMass Quizzes
Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.


This tests some key elements of major motivation theories.