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# Minimum WACC, the Optimal Po, and the Optimal D/A%

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Given:
Total assets \$3,000,000
The risk free rate Krf 6%
The market rate Km 11%
the unlevered beta of the firm 1.1
The tax rate 40%

Assume that all earning are used for dividends (EPS = DPS) and 0 growth

The following 5 debt levels and associated Ks and DPS will be analyzed

Debt level associated Kd (1-T) associated DPS

\$0 0% \$4.00
\$350,000 5.25% \$4.25
\$700,000 6.00% \$4.50
\$1,000,000 6.50% \$4.75
\$1,250,000 7.00% \$5.00
\$1,500,000 8.00% \$5.10

Using this data, find the minimum WACC, the Optimal Po, and the Optimal D/A%

#### Solution Preview

Hello!
I'm attaching the answer and calculations in an Excel sheet. Answer is:

Minimum WACC = 10.93%
Optimal Po = \$36.12
Optimal D/A % = 33.33%
[This corresponds to the \$1,000,000 debt level]

Basically, in order to solve this exercise, I first found the levered ...

#### Solution Summary

The optimal PO and minimum WACC are determined.

\$2.49