See attached file.© BrainMass Inc. brainmass.com August 18, 2018, 10:17 pm ad1c9bdddf
Please see the attached Word 97-2003 document.
a. (see attached file)
b. (see attached file)
c. The cost of capital drops because the after-tax cost of debt is less than the cost of equity. Therefore, by the operation of math the company's weighted-average cost of capital decreases as more of its capital structure consists of a lower-cost component.
d. As the company's debt load increases, the amount ...
This solution illustrates how to calculate a company's weighted-average cost of capital at different debt/equity combinations and how to construct a pro-forma balance sheet at the optimal capital structure.